CI&T Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 18, 2023

There are 17 speakers on the call.

Operator

Good morning. Welcome to CINT Earnings Call for the Q2 of 2023. I am Eduardo Galvao, Director of Investor Relations at CINT, and I'm happy to be here again to talk about our results. With me on today's call are Sazargon, Founder and CEO Bruno Giacardi, 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 investors atcint.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 Report 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 on 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 Gohne to begin our presentation.

Speaker 1

Thank you, Eduardo, and good day, everyone. I'm thrilled to have you all here for another quarterly earnings call. I'm eager to engage with you and present our performance and accomplishments. Let me start by sharing our evolution in the helm of artificial intelligence. Every once in a while, a revolutionary technology emerges that changes everything.

Speaker 1

And I believe we are standing at the brink of the most groundbreaking moment in the history of computing. CNT has been fortunate to participate in and contribute to the 4th chapter of the digital revolution as the creators of the Link Digital book of knowledge for digital transformation. Now I feel blessed to guide CI and T in co authoring the next chapter of this revolution, the digital world powered by artificial intelligence. AI is a transformative technology and also the gateway to a new disruption in the corporate world, the one we call hyper digital. Over the next decade, I believe hyper digital will fold in 3 acts.

Speaker 1

Act 1 is hyper productivity, paving the way for Act 2, hyper personalization. And this progression then leads to Act 3, the advent of disruptive new business models enabled by the exponential reduction in the cost of complex decision making. The challenge with these revolutionary moments is that they tend to thrive in the photo greenfield environment of start ups and digital natives. But often, it takes years to make a relevant impact in the brownfield setting of large established enterprise. In a nutshell, these advancements need to become enterprise ready.

Speaker 1

They must reach a level of maturity where the potential of the new technologies can be translated into customer value within a framework of reliability, security and privacy, factors that are non negotiable for traditional and successful companies. So this is our ambition. This is CINT vision and what we are bringing to life to make it hyper digital enterprise ready. As you know, to achieve that, last month, we proudly launched Cint Flow, an AI platform for hyperdigital. Already, we have initiated engagements with 12 of our largest clients from varied industry verticals, embarking on the journey of computing CI and T Flow.

Speaker 1

Over the next 12 to 24 months, we plan to scale this platform across all CINT clients and combine over 100 new AI agents developed by both CINT and partners. We are at the beginning of Act 1 and we find ourselves already reaping tangible results, a surge in productivity that has, in some cases, doubled our previous benchmarks. We can only forecast that we are going to achieve multiple increases in productivity in the years to come. Early results are promising, and we are enthusiastic about the potential to significantly enhance productivity, improve quality and accelerating progress. The Rama of Artificial Intelligence presents a new array of exciting opportunities and we are positioning CIT as a front runner.

Speaker 1

Now let's take a look at our Q2 financial highlights. Once again, we are proud to deliver a sound result amid macro uncertainty. Our net revenue was BRL 572,000,000 in the Q2 of 2023, 9% higher than the Q2 of 2022. In the last 12 months, we added 56 new clients to our portfolio in multimillion accounts, reaching 183 clients with annual revenue above BRL 1,000,000. The adjusted EBITDA margin in the quarter was 20%, an increase of 90 basis points compared to the Q2 of last year.

Speaker 1

Adjusted net profit was BRL63 1,000,000, 21% higher year over year with an adjusted net profit margin of 11%. These strong results serve as evidence of our ability to uphold efficiency despite the challenges posed by a volatile market environment. I extend my gratitude to all CINT team members worldwide, who have shown unwavering dedication in creating value for our clients and for our stakeholders. Now let's delve in some examples of our client engagements and explore some of the noteworthy business highlights for the quarter.

Speaker 2

In 2021, Ford's business model in Brazil changed. As a result, CINT was engaged to collaborate in building a new sales journey. One of the goals was to impact the company's culture, leaving a legacy beyond digital experiences. During the project, we had the opportunity to work with agile methods, implementing dynamic processes and suggesting improvements to transform the way of building products and driving innovation within Ford. We started the project with a 1 week lean inception, involving an average of 25 people from Ford, plus the CI and T team.

Speaker 2

After 7 months of discovery and delivery, we launched in presales platform of the F-one hundred and fifty, the world's best selling pickup truck. On launch day, Ford sold out of all available vehicles in 9 minutes. The impact of the CI and T Way was felt throughout Ford and the presale became a benchmark for the South American market due to its positive outcome.

Speaker 3

CI and T's team worked with 1, a global container shipping company headquartered in Singapore to transform its customer service operating model through case intent standardization and sales force omni channel strategy that unifies channels such as mail, phone, chat and web aiming to achieve the company's goals. The teams worked together to implement Salesforce Service Cloud, starting with the Salesforce chat and Einstein Bots, then gradually moved into supporting the enhancement of the overall case management framework. We successfully launched to all regions, more than 50 countries across different regions globally by mid-twenty 23.

Speaker 2

For decades, we have been at the forefront of the agile methods required for digital transformation. Now, a new fast paced world has emerged, the hyper digital world. In this new reality, hyper productive teams can quickly pay off technical debts and tackle new backlog tasks that were previously impossible. This reality is enabled by the increasing use of AI and software development, which is leading to daily revolutions. Thanks to AI powered teams, it is now possible to automate tests in legacy systems with double the productivity, freeing up time for cloud migration, DevOps and other strategic work that directly impacts lead time and the quality of each deliverable.

Speaker 2

Satisfaction and business efficiency. Using our approach to hyper digital, one of our clients recently saw more than 50% increase in productivity and 4 times more velocity in the lead time of new features. With our clients, we continue to develop and learn about the hyper digital world. Once more, we are leading the way in implementing new high standards and state of the art software development practices globally. And the revolution has just started.

Speaker 3

Welcome to our latest update. We have gathered the most recent information and insights from our leadership team to share with you. We are committed to building a better tomorrow by fostering a culture of respect for the LGBTQIA, P and N plus community. This year, we developed a Global Pride Month to raise awareness, build allyship, networking and support local communities. In Brazil, we launched a groundbreaking project dedicated to supporting the trans community who are disproportionately impacted by hatred.

Speaker 3

During Pride Month 2023, we reaffirmed our commitment to promoting a better future for all. At CINT, the Pride community represents 11% of the workforce globally. In June, we were at London Tech Week, a global celebration of tech, uniting the most innovative thinkers and talent of tomorrow in a week long festival. Our event, Bot or Not, accelerating business success in a post digital transformation world, explored how organizations can thrive in the ever changing digital landscape, including discussions on agile working, customer centricity and emerging technologies like generative AI. Chris George, VP Product and Mark Rodseth, VP, Technology, led a keynote followed by a panel discussion with leaders from clients.

Speaker 3

The day concluded with an engaging and T has achieved certification from the Women on Board initiative. Women on Board is an independent initiative whose purpose is to acknowledge, value and promote corporate environments in which women are part of the Board of Directors or at advisory councils. In CI and T's case, women represent 25 of our board of directors and we are actively working to increase this number. We have acquired renewable energy certificates to cover 1 100% of the electricity consumption of our operations in Brazil. To further reduce our environmental impact, starting in 2023, we will also seek to support cleaner and renewable energy.

Speaker 3

For this reason, all energy consumption from our Brazilian operations has been offset through renewable energy certificates. This means that all company electricity in Brazil comes from clean and renewable energy sources, representing our firm pledge to long term sustainability. CINT sponsored the Agro Day 2023 Conference with the central theme, Future of Food. The event brought together representatives from some of the biggest companies in the sector. Rodrigo Fontenati from CI and T featured a panel presenting agro projects and initiatives with Nestle and Tetra Park executives.

Speaker 3

The event was widely viewed with over 27,000 people watching the live transmission and more than 400 representatives from 15 companies registered

Speaker 4

to attend. To

Speaker 5

attend.

Speaker 3

This is our latest news. Our aim is to continue providing transparent and relevant information to keep you informed and up to date on our latest developments and achievements.

Operator

AI marks the dawn of transformative era, where innovation reaches boundless horizons. So we made our own revolution. CI and Tflow, a platform that combines humans and AI agents to unlock the hyper digital for the enterprise world. Increase the speed and efficiency of teams throughout the entire build

Speaker 6

What does it look like? More than a concept, CI and TFLOW is a platform that envisions a brand new world of possibilities.

Speaker 7

This revolution combines the work of AI agents hand in hand with humans throughout the entire building cycle. It all starts from ideation, going through design, development, This is the power of AI and humans working together. This is the vision of CI and T Flow that we are bringing to life.

Speaker 6

We brought CI and T Flow to life at the New York Stock Exchange. In the event, CI Antif Partners participated, including Bruno Guisardi, Mars Cirillo and the CEO, Cesar Gaughan. Afterwards, a panel moderated by Bob Woolheim brought together industry leaders to discuss the potential of AI in the enterprise world and how to establish a strong foundation for achieving efficiency while testing out new work models. This event was a groundbreaking initiative by CI Antif and generated significant interest from the market including both existing clients and With unwavering dedication and capabilities, our powerhouses are responsible for CINT's creative and innovative energy and are the very essence of what makes our company truly inspiring. We invite you to get to know our true essence as we spotlight 3 of our powerhouses.

Speaker 6

Open Finance Powerhouse works to unlock the full potential of Open Banking's vast information from various institutions. The gaming powerhouse gathers a group of specialists united by a single goal to establish CINT as a reference in game development including art services and cloud gaming. The cybersecurity powerhouse comprises experts who enable technologies and processes and empower people with the strategy to ensure security with scalability and efficiency in software engineering and platforms. These powerhouses are more than just structures. They embody our unwavering dedication to continuous learning and improvement, circulating knowledge within CINT and propelling us to make the impossible possible.

Speaker 5

Hi. My name is Renata Filtrin. I work as Executive Director, focusing on business development and innovation in the Latin America market. So, Mentorella is a program I made exclusively to women seeking to apply senior leadership positions in companies participating in the United Nations Global Compact in Brazil is aligned to have by 2,030 50% of women in senior leadership positions. Our motivation to do a volunteer project outside C and T is because I occupy a clear position of privilege and access in society.

Speaker 5

It makes me aware of my responsibility for the complex social context in which we live. Doing nothing is also having a position.

Speaker 8

Writing and computers, those have been my two passions. I haven't stopped and continued to do that throughout my life. The book that I'm writing is Hello World, and it's a near term science fiction thriller where all AI research has been banned and research takes place in sandboxes to contain the risk of superintelligence. So I started writing Hello World about 2 years ago and then I wrote a few chapters and then put it on the shelf. And then recently, with all of the boom in generative AI and all of the activity at CINT, it inspired me to pick up the book again and finish writing it before the future races ahead of me.

Speaker 8

So seeing everything that's going on at CINT and speaking to people and reading articles such as Cesar's paper, all were good inspirations to pick up the book and finish it.

Speaker 1

I hope you liked our client stories, news and highlights selection. Now I invite Bruno to talk about our talent management.

Speaker 9

Thank you, Cesar, and good morning, everyone. It's a pleasure to be here again to discuss our people and delivery model. In Q2 2023, we continued to efficiently manage our headcount to maintain a lean organization structure and prepare for our hyper productivity era. We now have 6,200 tiers with a geographically diversified talent base. Our global presence has allowed us to enhance our near shore delivery model, fostering our competitiveness and delivering with speed and efficiency.

Speaker 9

Attrition has always been a crucial area of focus for us, and I'm happy to report that attrition keeps improving. In Q2, it achieved a rate of 10.5%, a testament to the positive work environment we have created. In addition, our leadership attrition is at a remarkable low of just 2.6%, reinforcing our commitment to develop and retain top notch leadership talent. The average executive tenure at CIT is 15 years, which demonstrates the strong leadership culture we have nurtured, providing sustainability to our growth and superior quality to our clients. We're committed to being a more diverse and inclusive organization, and I'm delighted to share that we were awarded esteemed Woman on the Board CEO.

Speaker 9

This prestigious certification recognize our efforts in fostering gender equality within our environment. We're proud to have 2 women in our Board of Directors, making up 25% of the Board composition. This recognition reinforces our commitment to promoting gender diversity and continuing to do more to empower women in the leadership roles. We are super excited to see the massive involvement of our people in the Gen AI movement. We've been witnessing the explosive growth of our AI powerhouses.

Speaker 9

Now almost a quarter of our global talent pool, around 1600 people is involved in one of these specialized communities. Or exposed to Gen AI engagements directly with clients. They are developing critical skills in this new set of technologies and helping us build agents to accelerate the development of digital experiences. Some groups are focused on what we call business use cases, where we are completely reimagining our clients' customer experience using Gen AI to achieve a more human feel and create better engagement. Some other groups are applying Gen AI to our own software development process to achieve high productivity and unprecedented levels of speed.

Speaker 9

So we can offer our clients the best performance in the industry and help them overcome their challenges toward adopting GenAI. We believe these technologies will completely change how digital solutions are created and software is developed today. Processes, roles and team topologies will change profoundly in the next decade and we're very proud that our teams have embraced that challenge ahead of the pack and are trailblazing our path to the future. Now I invite Stanley to give you more details about our financial performance.

Speaker 4

Thank you, Bruno, and good morning, everyone. It's a pleasure to be here again presenting our financial results. We are happy to share that we have achieved another set of consistent results during the Q2 of 2023. Our net revenue in the Q2 of 2023 was BRL507.1 million, 9% higher than the Q2 of 2022, both on a reported and on a constant currency basis. For the first half of twenty twenty three, our net revenue grew 16% on a reported basis, totaling BRL1181.8 billion.

Speaker 4

Analyzing our revenue distribution by geography, North America contributed to 46% of our total revenue in the first half of twenty twenty three. LATAM represented 40%, followed by Europe with 10% revenue share and Asia Pacific with 5% contribution. As we develop our global operations, we are witnessing a noteworthy expansion in mature economies, now representing 60% of our total revenues. During the first half of twenty twenty three, we saw positive growth across our primary verticals. Financial Services experienced a 5% increase in revenue compared to the first half of twenty twenty two.

Speaker 4

The consumer goods vertical witnessed an increase of 6% in revenue, while technology and telecommunications sector exhibited the strongest performance recording a 66% growth in revenue in the period, boosted by the acquisitions concluded in 2022. Lastly, it's worth mentioning that we are further diversifying our revenue streams in terms of client share through the incorporation of new logos and successful M and A endeavors. Now let me detail the components of our growth profile. During the last 12 months, we maintained a steady focus on diversifying our client base, successfully onboarding 56 new clients with revenue exceeding BRL1 1,000,000 into our portfolio. Most importantly, we continue to expand our wallet share within our large clients, fostering our main growth engine.

Speaker 4

The number of clients with revenue surpassing BRL20 1,000,000 rose from BRL21 in the last 12 months ending in Q2 2022 to BRL26 in the last 12 months ending in the Q2 2023. In addition, the number 2023. In addition, the number of clients with revenue above BRL10 1,000,000 grew from BRL12 1,000,000 to BRL22 1,000,000 in the same comparable period. Over the past 5 years, our net revenue retention rate has consistently hovered around 123%. This highlights the fact that new clients not only remain with us, but also have the potential to further expand our engagement and grow over time.

Speaker 4

This aspect plays a crucial role in ensuring our sustainable growth. Moving on the presentation of our financial performance. Our adjusted EBITDA increased 14% from BRL100.4 million in Q2 2022 to BRL114.2 million in Q2 2023. Adjusted EBITDA margin was 20% in the Q2 2023, 0.9 percentage points higher than in the 2nd quarter 2022. In the first half of twenty twenty three, our adjusted EBITDA grew 25 percent, reaching BRL230.7 million with an EBITDA margin of 19.5%.

Speaker 4

The improvement in the EBITDA margin in the first half of twenty twenty three is a result of our systematic and disciplined approach to identify operational optimization opportunities. For example, through detailed analysis of our cost structure, we are implementing innovative cost saving actions and actively improving our productivity through the use of artificial intelligence tools. A substantial portion of these savings will be allocated to foster research and development in artificial intelligence initiatives as discussed in our previous earnings call to leverage our future growth. Finally, the adjusted net profit was BRL63.1 million 2nd quarter 2023, 21% higher than the same period of last year. The adjusted net profit margin increased to 11% in Q2 'twenty three from 10% in the Q2 'twenty two.

Speaker 4

In the first half of twenty twenty three, net profit was BRL 130.3 million, a 42% growth compared to the first half of twenty twenty two. The improvement in our net profit margin is attributed mainly to the dilution of SG and A expenses as a percentage of revenue and lower income tax expenses. Now I invite Cesar back to comment on our business outlook.

Speaker 1

Thank you, Stanley. As we set our sights on the future, we continue to see uncertainty in the global economy throughout the second half of the year. So we will persist in navigating 2023 with caution, prioritizing bottom line and cash generation, while preparing our teams and AI capabilities to resume more aggressive growth in 2024 and beyond. For the Q3 of 2023, we expect our revenue to be at least BRL545 1,000,000 at constant currency, a 2% decline year over year. For the full year, we are updating our guidance mainly to reflect a higher impact in the demand from our acquired portfolio and a budget replanning of our top clients.

Speaker 1

Thus, we expect our annual FX neutral net revenue growth to be in the range of 4% to 80% year over year. In the midpoint, the implied revenue in Q4 of 2023 represents a sequential growth of 6% and can be attributed primarily to new bookings underpinned by our AI strategy. Finally, we are maintaining our adjusted EBITDA margin expectation of at least 19%. In conclusion, I would like to express my gratitude to our clients, partners, investors and CRM tiers for their support and trust in our long term and shared objectives. Thank you for attending our call today.

Speaker 1

We now conclude our presentation, and we'll begin the Q and A session. Thank you.

Operator

Okay. We'll now begin our Q and A session. I'll announce each participant's name. First question comes from Pune from JPMorgan. Pune, please go ahead.

Speaker 10

Hey, thanks for taking my question. Cesar, I wanted to ask on demand. Like when do demand trends begin to improve? Like what needs to happen for clients to start spending on digital projects like they did before? And what are the leading indicators that suggest that the turnaround in growth rates is around the corner?

Speaker 11

I believe what we see is still a market that reflects a lot of uncertainties. Probably, you remember, we have a Q1 a little above our expectations, but that was related to short term strategy engagements. So the second quarter was in line with our projections. What we see now is still companies very cautious on starting new initiatives. I think the only leading indicator has relate to artificial intelligence.

Speaker 11

As you probably saw, we are projecting a sequential finally, a sequential growth in the Q4 of this year, primarily to new bookings underpinned by artificial intelligence and our strategy relate to hyperproductivity based on CIG flow. So I believe it's probably the first good sign that we can have a better 2024. And for sure, we are preparing CIG for capturing this new set of demand that will inevitable happen around the opportunities of hyper productivity and hyper personalization using artificial intelligence.

Speaker 10

Got it. And as a follow-up, your headcount was down in the second quarter as well, maybe more than revenue was down. So how do you think about your current utilization levels? And what should we expect for headcount rest of the year? Bruno, can I get this one?

Speaker 12

Pune, we've been running a very lean organization, right, so trying to kind of keep very efficient utilization rates are still very high, right? So we're still being able to kind of do the investments and dedicate resources to build those platforms like Flow and other components that will kind of build the future for ASEAN T. But we've been running a very lean organization and you can expect to see that going forward as well, the following

Speaker 10

demand.

Operator

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

Speaker 13

Hi. Thank you for taking our question. Any additional color that you could provide into the new projects and the AI engagements and hyper productivity with clients that will boost the higher growth going into the Q4? And also any additional color for 2024? What could we expect?

Speaker 13

What are your thoughts going into next year?

Speaker 11

Thank you, Ernesto, for your question. I believe we can summarize our demand around AI. That is starting to happen in 2 buckets. 1 is directly relate to efficiency, really streamline the whole flow of producing digital solution using AI agents. That's what we are calling CIT Flow Tech.

Speaker 11

And then we have a growing number of use case experiments in different verticals around improved customer experience or employee experience around new use case based on generative AI. So basically, we call CIT flow biz for this part. So basically, it's a combination of efficiency that we have amazing early results, but we expect it's going to as the platform mature and we add more agents, AI agents to the platform, it will be for sure it will drive multiple increase in productivity. And also, we are, I would say, in the discover phase of what are the killer use case of AI for different verticals, education, banking, telco and so on. So basically, this is our main agenda in terms of AI and CIAT flow.

Operator

Our next question comes from Tyler LuPone from Bank of America. Tyler, go ahead.

Speaker 14

Great. Thank you, Eduardo, and good morning, everyone. I just wanted to start by following up on the next demand question, specifically what you're anticipating for the back half of the year. Based on the new full year guide, back of the envelope math seems to show a change in growth from the second half going from up 13%, 14%, give or take, to down 5%. And at the lower end of the guide, it looks like we could potentially even see some negative sequential growth as we exit 2023.

Speaker 14

So I guess, 2 part, if you want, does that sound right to you? And 2, sort of what are you seeing more broadly in the market that's leading to this change in the demand outlook?

Speaker 11

Good to see you, Tyler. Thank you for our question. I think we are projecting Q3 really with 2 factors. 1 is a higher impact in the demand of our acquired portfolio combined with, I would say, unexpected budget replanning in our top one clients. So this is basically what we are seeing and forecasting for Q3.

Speaker 11

And for Q4, it's really a sequential growth based on the new bookings, 80%, 90% around new demand based on our attrition revenues.

Speaker 14

Okay, great. I appreciate that. And just as a follow-up, sort of in the prepared remarks, it sounded like, Cesar, you briefly mentioned the lower full year guide was partially due to a ramp down in some top client spending. So I was just wondering if you could provide additional color on what verticals or geographies those clients are in? And sort of how much of that are you anticipating will come back as we exit 2023 versus projects that are just no longer in scope?

Speaker 11

Sure. Tyler, to be clear, it's we I think the robust and managed is top one client, It's really one client. I think our 2 to 9 top clients are continuing in a solid position. And even for our top one clients, we believe this is a temporary adjustment based on market challenges, but they have a long term strategy and we are definitely part of building this digital future for them. So we expect even this top one client will regain traction probably from next year on.

Speaker 11

So it's hard to really by now to predict 2024. We see good signs in these new bookings for Q4, but we expect I think we will have more ascertain around what's going to happen probably by the end of this year or early next year. But I would say still cautious, but good early signs, especially around the efficiency opportunities relate to the AI disruption.

Operator

Our next question comes from Ashwin Shirvaikar from Citi. Ashwin, please go ahead.

Speaker 15

Thank you and good morning. Yes, my first question is with regards to the bookings that you mentioned. And when I look at sort of the current results of deceleration across the board as it relates to the growth rate, rate, space generation by dopamine, by net market and so on. So which of those verticals or geographies are notable in your bookings that you expect it should help lead the EBITDA of growth, if you will? And then from timing perspective, is it sort of contractual that your the book the demands would start in 4Q or could this get pushed out because of the uncertainty in the market too late or maybe next year?

Speaker 15

How can you help us understand? Is this a challenge for the impaired industry actually? So can you help us understand?

Speaker 11

Thanks, Ashwin. I think, in general, if we look by vertical, it's a tough year for Financial Services globally, and we have this is our largest vertical where we are playing. And in the other side of this, we see a lot of traction on telco and where we are growing faster, as Tony mentioned, especially in Europe. I see this as a result more specific of our strategy for this vertical and less related to general market conditions. But even though we are getting it's become more relevant in our as a revenue source.

Speaker 11

And in terms of I think regarding the new bookings and how I think we are quite sure that this demand indicates that especially our main clients are really starting to explore first, the efficiency opportunities around AI and then initial experiments around use case. So it's I think it's a good door for a strong for a stronger 2024 in terms of demand. And also, of course, we are betting a lot on the differentiation of C and IT performance based on what we are doing with initial important set of clients. I mentioned, we are working hand to hand with CNT Flow with 12 of our largest clients. And I'm sure this is already generating new demand.

Speaker 11

So this is part of what we see as regain sequential growth from Q4 on. And also, of course, is our main bet for really rollout the same strategy across our whole portfolio of clients and achieve, I would say, regain higher growth next year. So basically, I believe, we as we started this year saying that our 2 main objectives were bottom line, cash generation. I think we are doing this in a very disciplined way. And our, again, preparing we need to see the future.

Speaker 11

The future is clear now. We need to prepare our offering and capability to play this new chapter of disruption and disruption always means more demand. So it's unavoidable. I think, of course, we need to consider the current uncertainties that are impacting the whole demand environment, but it's unavoidable because of the opportunities to capture efficiencies and disruption in the experience are at the door. So I think this changed a lot the scenario for demanding digital, even though we still see a lot of uncertainties in the macro environment and it's hard to predict if how fast the economy, the global macro economy will recover.

Speaker 11

So very confident, more related to the way we are positioning CI and T and the response we are getting from our clients in different verticals, from banking to education, telco, retail and so on. And I think the less relate to the, I would say, optimist view of the macro environment.

Speaker 15

Understood. Thank you for that very comprehensive answer. Can I ask with regards to the CNTIGLO presentation at NYC was it any good one? As it relates to, so maybe the need to upskill and give your full population of employees sort of AI skills and so on and so forth, What is the process and investment needed to do that? If you can provide some details on that.

Speaker 11

Sure. We are totally focused on creating these capabilities. Right now, we have to be very selective selecting the clients that we can support in this new set of opportunities and capabilities. And but we are heavily invest on having the ability to scale flow and this strategy for next year on. I think Bruno can dig on more details on how we are doing this internally.

Speaker 12

As I mentioned in my talk there, Ashwin, and thanks for the question, like I think this is going to be very different. Like this is the process of building digital solutions, the process of building software will be very, very different in the next 3, 5, 10 years. And so and I think we're very happy where we are right now. I think we have a quarter of Santee already going through that challenge and learning what those new skills and the new tools are and kind of trailblazing that path, because that will be completely different, because in the future, The roles in the team, the teams themselves, how they organize, like they will be completely different. And I think we are kind of know how the back there, we're learning what that means.

Speaker 12

And hopefully, we'll be helping our clients actually to understand what needs to be done in their teams and their structures, and we'll continue supporting them through that future.

Operator

Our next question comes from Carlos de la Garreta from Itau De Bea. Carlos, please go ahead.

Speaker 16

Hi, thank you. Good morning. Good morning, guys. Thank you.

Operator

Good morning, Carlos.

Speaker 16

Two quick questions on my side. The first one, just looking at the geography breakdown of your revenues, particularly what stands out is the softness in LatAm results, not only for the quarter, for the full year or the first half of the year. Just wanted to know your insights of whether you think this is perhaps what will drive the software guidance? And if this is attributable to maybe this main client? And secondly, Cesar, I'd love to hear your thoughts on CNT Flow.

Speaker 16

Obviously, I know you had the event, but I think totally great to hear firsthand from you? And what are the expectations in terms of which verticals do you think this could particularly benefit or should it be across the board? Thank you.

Speaker 11

Thank you, Carlos. I think as we mentioned, I think LATTE is recovering faster than other regions. And but I think it's more related to our portfolio of clients than general market conditions. And of course, the top one client impact is in the U. S, so it changes the game among the regions.

Speaker 11

And Europe is responding in a very good way. So but for sure, we account a lot on the fact that we can lead LATTE in a very good, especially Brazil, in a very strong way based on our amazing client portfolio here. Regarding CINT Flow, by now, we have set of verticals where we are experimenting and getting these early enthusiastic results. Banking is one industry. Education is amazing opportunity in different perspective.

Speaker 11

The telco is another, especially where you see opportunities to improve customer services and also optimize very complex operations. And we also have retail, 2 big retail companies, 1 in Brazil and other in the U. S. A. In this initial pack of customers.

Speaker 11

So I believe it's going to be across the board. Of course, as, I would say, large operations with challenges on customer experience probably will be the main hit for artificial intelligence and CIMT Flow. But as we evolve the platform, I believe it's going to be a very horizontal way to drive efficiency. And also, as I mentioned, I think we will probably in a few quarters, we'll start to see the initial set of killer use case around generative AI and then this will drive a lot of demand for specific verticals. So very excited with our early results, amazingly proud of this, the set of customers that are already working with us on computing CIG flow.

Speaker 11

And I believe we did the right move in the right moment. And I'm quite sure it will drive a lot of differentiation for us in the years to follow.

Speaker 16

Thank you for that. And if I may have a follow-up, just I'd love to hear your thoughts. I'm sure you're aware that Globant announced recently an ambitious plan to double down their investment in LatAm and particularly in Brazil. I just want to hear your thoughts about that. Obviously, we talked to them, but we'd love to hear what's the opportunity that you're seeing and if these changes had all the outlook that you have, more in the bigger picture.

Speaker 11

Sure, Carlos. It's amazing to see a company invest on where we already are. Brazil, I always repeat that, Brazil is the largest and the best tactile and polyethylene lots in America and it's the 2nd largest in the Americas time zone. And it's an amazing place to play the supply side of our game. And it's I think it's just one more evidence that what we have and the way we play our talent game will continue to be a huge differentiation for CI and T.

Speaker 11

I believe the good and other aspect of Brazil is this combination of quality and scale, our facilities around talent plus domain vertical expertise. So we have a big internal market, so you can leverage a lot of like banking, you can retail expertise, telco expertise in a game that will change toward this new disruption due to the set of technologies, but that will have to be applied in different ways for different verticals. I think we have the best blended combination of talent and domain expertise. So I see Brazil playing even more important role in the future of global digital services and we are lucky to be born here. And of course, building a global business now around 60% of our revenue comes from U.

Speaker 11

S, Europe and Australia and Asia, but having Brazil as still our main source of talent, say a lot of the possibilities of scale CINT in the future.

Speaker 16

Thank you for your comments, Cesar.

Operator

Thank you, Carlos. We have two questions here from EMEA. First one is regarding the EBITDA margin. So how should we expect EBITDA margin for the second half of the year, given you reported 14.5% The first half of the year and the guidance is pointing to 19% margin.

Speaker 4

I can take that one. Thank you for the question. EBITDA margin has improved in first half of the year, mainly due to SG and A dilution. Of course, we are closely monitoring our costs and expenses to maintain this lean organization that Bruno mentioned and healthy margins. Of course, that's what we are looking for.

Speaker 4

It's a good year of cash generation as well. So we are fully focused on both aspects here as we are in this lower growth environment. Of course, part of those savings, we have been directed to capabilities of our artificial intelligence endeavor, yes, and we will continue to do it so. So we expect to maintain a more stable EBITDA margin throughout 2023. And just as a reminder, the EBITDA margin guidance that you mentioned is at least 19%.

Speaker 4

So I

Speaker 11

think that covers.

Operator

Thank you, Stanley. And the final question we have is regarding M and A. Do you expect to resume M and A in the coming quarters? What are the lessons learned from the companies you acquired in 2022?

Speaker 11

I can start this one. As you know, we concluded our first wave of acquisition last year. That was amazing to increase and diversify our the markets we are and verticals we are serving. And now we are dedicated to fully integrate these acquired companies, folks on library, the relationship of large and global clients that we onboarded. And of course, we are preparing CI and T for, I would say, to resume M and A activity next year.

Speaker 11

I think we need to reinforce that our main core strategy is organic growth, but we could see the high potential of combine or accelerate our organic growth through a very specific set of acquisitions. So I think we continue to analyze opportunities in the market. I don't believe we are going to do short term moves in this space, but I'm sure we are going to do more deals from next year on and based on the kind of results we could leverage in the past.

Operator

All right. So that concludes our Q and A session. Cesar, would you please proceed with your closing remarks, please?

Speaker 11

Sure. Thank you, Gauvain, Stanley, Bruno, who joined me. Thank you all for participating in our call. Again, a big thank for ROCE and TIR for the solid results in this first half of the year. A lot of challenges ahead, but we are here to overcome that.

Speaker 11

And a special, special thank you for our clients that select CINT to co create this exciting new chapter of innovation around powered by artificial intelligence. That's it. Stay well. See you soon.

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Earnings Conference Call
CI&T Q2 2023
00:00 / 00:00