Ci&T Inc (CINT) 2021 Q4 法說會逐字稿

Good morning, everyone. Welcome to CI&T Fourth Quarter and Full Year 2021 Results Conference Call. I'm Eduardo Galvao, Head of Investor Relations at CI&T.

Today, we have with us Cesar Gon, Founder and CEO; Bruno Guicardi, Co-Founder and President for North America and Europe; and Stanley Rodrigues, our CFO. This event is being recorded. (Operator Instructions) This event is being broadcast live and may be accessed through the company's Investor Relations website at investors.ciandt.com, where the presentation is available. The replay will be available shortly after the event is concluded.

Some of the matters we'll discuss on this call, including our expected business outlook, are forward-looking statements, and as such, are subject to known and unknown risks and uncertainties, including, but not limited to, those factors described in our earnings release and discussed in the Risk Factors section of our registration statement on Form F-1, in connection with our initial public offering and other reports we may file from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place undue reliance on those forward-looking statements because they are valid only as of the date when made.

During this presentation, we'll comment on certain non-IFRS financial measures to evaluate our business. Please refer to the reconciliation tables of non-IFRS measures in the appendix for more details. Our agenda for today includes an update on our financial highlights and recent events, followed by some of our successful business cases. We'll also discuss our people and ESG strategy and deep dive on our quarterly and annual financial results. After the presentation, there will be a Q&A session.

Now I'm pleased to invite Cesar Gon to begin our presentation.

Thanks, Eduardo. Good day, everyone.

I hope you are well and safe. It's an honor to be here again with all of you. We are delighted to end 2021 with robust results, outperforming our growth guidance for the quarter and year in our first year-end as a public company.

Before diving to those results, a word about our industry under the current economic macroenvironment and the opportunity for CI&T. Yes, there are clouds in the sky. The global economy is yet to recover from a devastated pandemic. And we have a new set of geopolitical threats on the table. But one thing has not changed. Software continues to eat the world, enabling unprecedented and radical shifts in society, values and consumer behaviors. Companies need to react, and uncertainties are the best fuel for change.

Digital is the answer to reconnect companies to a new breed of consumers. The result is a secular demand for digital services in the corporate world and an extraordinary opportunity for a decade of high growth for CI&T. And that's why we continue to present solid results and a bullish long-term outlook. Our net revenue growth in the fourth quarter of 2021 was 72% year-over-year. And I'm proud to say this is our 22nd quarter of consecutive revenue growth.

In 2021, our net revenue totaled BRL 1.44 billion, 51% higher than 2020. This growth was boosted by 3 main factors. The first was higher demand from existing clients with a net revenue retention of 128%. Second, the addition of 36 new clients with annual revenue above BRL 1 million to our portfolio, moving from 58 in 2020 to 94 in 2021.

Third, the fast and smooth integration of Dextra as 4 new growth units. On top of our solid growth, our adjusted EBITDA margin was 22.4%, a benchmark in our industry. And our cash conversion was 66%. It's an outstanding result. And I want to express my gratitude to all CI&Ters worldwide. I'm very proud of what we have done as a team. Thank you.

Stanley will present our financial results in more detail shortly. Another relevant update. In January this year, we announced our first post-IPO acquisition, aligning with our goal to pursue strategic M&A to foster our organic growth. Somo is an award-winning digital product agency based in the UK with a very similar culture. There are founder-led, innovation-driven and have a strong reputation with global brands, delivering digital solutions across several verticals, especially automotive and utilities.

The company recorded GBP25 million in net revenue last year, a 41% growth compared to 2020. Somo adds around 300 digital specialists with deep expertise in digital products, a strong leadership team and offices in the UK, the US and Colombia. It will accelerate our growth in Europe, the second largest market for digital services in the world.

Now let's take a look at recent buffer stocks we are building with our clients. The first is a high-end US manufacturer reinventing the home audio experience. The second is Somo helping a large UK utility company, boost customer experience at scale. And third is the successful launching of a financial service marketplace to millions of consumers in Brazil in just 4 months. There we go.

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Well, these are just a few examples of how CI&T is generating business impact at pace and scale to some of our clients.

Now I invite Bruno to talk about our delivery model and to comment on our people and ESG strategy.

Thank you, Cesar. Good morning, everyone.

It's nice to be here with you again. We are very proud of our organizational design, which we've been perfecting over many years. It is a model designed for growth and has entrepreneurship at its core. We approached the market through autonomous units called growth units, which are in charge of bringing together multifunctional teams that work on multi-year journeys along with our clients. And through faster innovation and corporate learning across the group units, we created powerhouses.

Powerhouses are virtual [cloud growth] unit communities, focused on speeding up learning on marketing verticals, new technologies, security practices or any specific subject relevant in a digital world. With our powerhouses, we can assemble teams that our fluid in industry verticals, have deep expertise in the life cycle of digital products in its practices, master a wide range of technologies and are also role models for a new organizational culture, more agile and more collaborative.

Now let's take a look at a practical example of one of our successful powerhouses.

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Now on to our most important asset, our people. In 2021, we surpassed an incredible mark of 5,000 CI&Ters around the globe, and ended the year with more than 5,500 people. It represents a net addition of 2,300 CI&Ters, a 73% growth year-over-year. Our attrition rate at the end of 2021 was 15.6%, an increase compared to CI&T's historical level due to M&A activity and the current competitive environment for tech talent.

Our leadership attrition, though, was only 3.6%, allowing us to continue projecting consistent growth in high net revenue retention. We continuously strive to enhance CI&Ters' experiences and opportunities internally, speeding up in their careers. Our strategy is to attract people at entry and mid-level positions, develop them and promote them within. As they grow with us, they stay longer with us. So due to that strategy, we are very proud of having an average tenure of 15 years at the executive level.

At the beginning of 2022, we onboarded 400 new hires into our trainee program called Next-Gen, which has been going on for more than 2 decades. We have long-term partnerships with the best universities in Brazil to foster our program and promote our employer brand. Our hiring and training machines have been operating at full speed globally to attract and retain the best talent in the industry in order to support our accelerated growth.

We are proud of being nominated as 1 of the top 5 Great Place to Work in Brazil in 2021, a recognition that demonstrates our continuous effort and commitment to providing an innovative and collaborative environment for our employees. Moreover, CI&T's topped ranking as a Great Place to Work in most countries it operates. And now we add Colombia to that list, a recognition received by Somo in 2021.

Over the last 2 decades, we have been perfecting a robust and distributed delivery model that allows us to provide superior performance to our clients and therefore, keep our net revenue retention at a very high level. Our operating model is based on a combination of onsite teams close to our clients with nearshore tech talent from cost-effective and time zone compatible locations.

Due to our origins, Brazil is still our main source of tech talent. And although Brazil is ideally located to serve the massive US market and the largest pool in America, it's just behind the U.S.A. We are yet working to diversify our talent pool. In those lines, we're very happy to see the recent addition of Colombia to our footprint, an operation, we are integrating from the Somo acquisition.

We are committed to building and promoting a diverse, inclusive and equitable company, focused on creating a better tomorrow around us. It's a long journey that requires an inspiring vision, solid actions and a lot of pragmatism. We don't just want to do the right thing. We want to be a lighthouse for changing society. Our ambition is to be a role model for more responsible leadership in the corporate world with a broader vision of what success looks like, beyond simply the company's success to a more significant impact on the lives of our people and the communities around us.

Last year, we signed a Global Compact from the United Nations, and we chose 6 sustainable development goals that connect to our cause and serve as a starting point to define our goals and actions. In the second quarter of 2022, we will release our ESG Report, detailing our main initiatives, results and ambitions for the future.

Now I will hand it over to Stanley to comment on our financial results. Stanley, please?

Thank you, Bruno, and good morning, everyone.

I hope you're all doing well. I'm excited to present the details of 2021, another great year of CIT. In Q4 '21, our net revenue was BRL 456.8 million, an increase of 72% compared to Q4 '20 and above our guidance of at least BRL 440 million. Net revenue organic growth was 40%, while our net revenue in constant currency grew 69% in the comparable period.

During the quarter, we expanded our engagement with our existing clients and we added to our portfolio, 19 new clients with net revenue above BRL 1 million in the last 12 months, going from 75 clients in Q3 '21 to 94 in Q4 '21. Our adjusted EBITDA was BRL 101.8 million, an increase of 78% compared to Q4 '20, with an adjusted EBITDA margin of 22.3% in Q4 '21.

Adjusted net profit reached BRL 47.7 million, an increase of 62% compared to Q4 '20. In 2021, CI&T's net revenue was BRL 1.44 billion, an increase of BRL 488 million or 51% year-over-year. Net revenue growth in constant currency was 47%. Our performance was driven by our net revenue retention rate of 128%, demonstrating the recurrence and the resilience of our business.

Adjusted EBITDA was BRL 324 million, 36.2% higher than in 2020. Adjusted EBITDA margin was 22.4% in 2021, below the level of 24.9% reported in 2020 when the results benefited from lower costs and expenses during the first year of the pandemic. The adjusted net profit was BRL 157 million, an increase of 22.6% compared to 2020. The adjusted net profit margin was 10.9% in 2021, a reduction of the level observed in 2020, mainly explained by the increase in the cost of services provided and higher expenses with depreciation and amortization and financial expenses.

CI&T continues to deliver solid cash flow. In 2021, CI&T generated BRL 214.4 million in cash from operating activities, 37% higher compared to the amount of BRL 156.9 million recorded in 2020. Deducting payment for income tax and interest on loans, borrowings and leasing, net cash from operating activities was BRL 132.4 million, an increase of BRL 31.4 million in relation to 2020.

CI&T ended December 31, 2021, with a financial net cash position of BRL 145.8 million, composed of a gross debt position of BRL 788.7 million and BRL 934.5 million in cash, cash equivalents and financial investments, including the net proceeds of our IPO.

Moving on to our pro forma numbers. Our pro forma net revenue for 2021 totaled BRL 1.62 billion, 39.4% higher than in 2020 and above our guidance of at least BRL 1.6 billion in 2021. In terms of geography, the US operation continues to be the fastest-growing market, recording a 50% organic growth in Q4 '21 compared to Q4 '20. All industry verticals presented significant growth. It's worth mentioning that technology, media and telecom and retail and manufacturing were the verticals that grew faster in terms of revenue in Q4 '21 year-over-year.

In 2021, we improved significantly our revenue breakdown by client. We reduced our top one client concentration from 21% in Q4 '20 to 16% in Q4 '21, and reduced our top 10 client concentration from 72% to 54% in the same period. And as of the first quarter of '22, Somo will contribute to increase our revenue exposure in Europe and in hard currency, add exposure to 2 new verticals, automotive and utilities, and diversify our client concentration with its portfolio of solid and well-known brands.

Now talking about our land-and-expand strategy. The average net revenue retention rate in the past 5 years reached 120%. And in 2021, our net revenue retention was 128%. Most of our growth in the upcoming years happens by expanding within current clients, which provides greater visibility of the trends in our business. In addition, we pursued the entry of new logos every quarter to foster future growth. In 2021, we successfully increased the number of clients with annual revenue above BRL 1 million from BRL 58 million in 2020 to BRL 94 million in 2021. The number of clients above BRL 5 million and BRL 10 million also consistently grew over the same period, building a solid cohort for the upcoming years.

Thanks, Stanley.

Now let's talk about the future. It's worth looking back to understand how we will move forward. Founded in 1995, CI&T has 27 years of consecutive growth and profitability. From 2006, the emblematic year we launched CI&T in the USA, to 2016, we had an organic 10-year CAGR of 30% in revenue. From 2016 on, we introduced 3 new growth forces: a domain-driven digital strategy as a core component of our offering; our growth unit business architecture, fostering a scalable entrepreneur organizational model and a programmatic approach for M&A as an enduring new capability focused on a flow of selective and strategic acquisitions.

As a result of those moves, we are accelerating our annual growth pace: 41% in 2020, 51% in 2021, and guiding at least 56% in 2022. To operate at this new pace, we are constantly increasing our investments in hiring, training and leadership development while keeping solid margins and cash conversion rates. That said, we can indicate a solid business outlook for Q1 '22 and full year 2022.

Based on current market conditions, we expect our net revenue in the first quarter of 2022 to be at least BRL 485 million, a 64% growth compared to our net revenue of BRL 296 million in the first quarter of 2021. For the full year of 2022, we expect our net revenue to be at least BRL 2.25 billion, a 56% growth compared to our net revenue of BRL 1.44 billion in 2021. In addition, we estimate our adjusted EBITDA to be at least 20% for the full year of 2022. This guidance for 2022 assumes an average exchange rate of BRL 5.2 to the U.S. dollar for the full year.

That's what we had for today. We are fully committed to generating value for our clients, investors, society and our people, and we are confident we are on the right track. Thank you all for your interest in CI&T and for attending our call today.

So we conclude our presentation here. And we may now begin the Q&A session.

(Operator Instructions) The first question comes from Ashwin Shirvaikar from Citi.

If I can start with a question on the growth and margin cadence that you expect through the year, if you can comment on that and the drivers, particularly because of the comp associated with Dextra and so on.

Sure. Ashwin, Great to see you again. Well, as we mentioned, we are guiding an annual growth of 56% for 2022. And part of this is organic. 41 plus percent of this growth is organic. And then we have the contribution of Somo for this growth. And in this guidance, we have not considered any additional M&A move, even though we have a very strong pipeline, I'm confident we are going to do a few next moves in this space.

So, this is basically following our -- really the amazing opportunity in the market. I think digital is more than ever being important and is strategic for every single company. And I think we are really showing our ability to manage the supply side of this equation, combining a very aggressive or again, hiring, training and leadership development strategy with our M&A, I think very programmatic M&A strategy.

And in terms of just the cadence of what you expect, roughly speaking, 1Q, 2Q, 3Q, 4Q, how do you expect that to vary over time, both for margins and [growth]?

Yes. I think in terms of revenue growth, we probably will have a very similar pace quarter-over-quarter along the year. In terms of margins, there is some seasonality, especially because of salary inflations. Normally, we have a lot of costs in Brazil, seller cost, and we have normally adjustment of salaries in the beginning of the year, January, and our price adjustments are designed to occur along the year. So normally, first half is more challenging in terms of March than the second half, but everything is, as we said, we are confident, we are guiding 20% plus EBITDA along the full year.

If I can ask just one quick question because we get this a lot because of the geopolitical situation you mentioned with Ukraine and Russia as well. I know you have no direct exposure there, but are you seeing maybe more opportunity as clients who may have done some work in those areas, maybe turn to you for more work? Or do you see maybe on the margin side because of those companies hiring in other regions, are you seeing any pressure on rate inflation?

As you mentioned, CI&T does not have office, people or any meaningful client exposure in the region. Certainly, there is -- this is an event that creates imbalance globally. And we are closely monitoring the developments in that region really in order to prepare to adapt ourselves. And more important is support our clients as needed. But at this time, it's difficult to make any further projections or expectations. We do hope this conflict will be over soon, and we are prepared to support our clients as needed.

Our next question comes from Diego Aragao from Goldman Sachs.

Yes. Maybe just a quick follow-up on Ashwin's question. If I would try to bridge your revenue growth expected in 2022, considering your NRR, new clients and maybe M&A, how should we be thinking about it? And the same for margins. Maybe just trying to understand what will be your margins without Somo because if I'm not mistaken, Somo comes with lower margins that's CI&T. So this is the first question.

Sure. I think, first, our growth profile is basically 41% plus organic and then a little more than 10% coming from Somo acquisition. And again, we have not considered further M&A in this growth. It's concentrated in the main markets. We are well established, US, Brazil and now UK. And we see -- foresee a lot of growth coming from Europe, compounding our historical growth in the US and Brazil.

The second, in terms of margins, you are right. Somo -- and our M&A targets are operating in lower levels of margins than CI&T. And so basically -- but it's a small impact. If you consider that Somo is a -- it's a company with very good margins, by the way, in the high teens, EBITDA high-teens, but less than 10% of our business. And we see also a very good opportunity to gradually improve their margins. Because of the current exposure to nearshore, it's only 20%. We are using Colombia for that. And we believe that gradually as they grow, we can increase adding CI&T global nearshore capability to increase their margins. So, we foresee that, basically, our strategy and that's -- that will -- we can expect as our M&A strategy move on, we expect some volatility in bottom line because of -- this is part of the game. We are adding CI&T ability to increase margins to the companies we are acquiring.

No, that's great. And I guess looking to your net revenue retention of 128%, if I'm not mistaken, this implies a great increase relative to 2020. So can you just maybe give some color on what is driving such improvement? Maybe new applications, new solutions, new services. Just want to understand where the incremental demand is coming?

Sure. Sure. Historically, our net revenue retention was around 120%. We are seeing an acceleration of this rate. It's basically more demand coming from our portfolio of clients, I think, especially our global companies are really investing -- increasing their investment in digital. There is plenty of opportunity regarding -- of cloud data, really improved customer experience, using more aggressively technology to support their customers and that drives more demand. And I think we have a very strong positioning and reputation with them. And basically, that help us to really not only increase the current engagements, but navigate to new business units and geographies with our portfolio. And that's driving this new level of net revenue retention.

That is very important to guarantee this new pace of growth. So we -- our strategy continues to be land and expand, whether short term. Or -- this year and next year, our growth will depend a lot on our ability to increase our positioning and revenues in our current portfolio while having the discipline of adding new logos, new clients every single quarter, that will guarantee future long-term growth. That's what we have been doing. And to go for this new base of 40-plus percent of organic growth, we definitely need a higher net revenue retention. And we are -- I think we are being able to do that.

Our next question comes from Puneet from JPMorgan.

With reais appreciating versus the U.S. dollar, are you seeing any impact on pricing for your either Brazil-based or US-based clients and what are the margin implications from this currency move?

Sure. Bruno, can you take this one?

Sure. So of course, there's no implication for the part of the business that are in Brazil, right, so as the same currency implications for -- we're serving the US market, right, from Brazil. Of course, there is some short-term implications in margins. But in our experience, we've been operating for more than 20 years. It evens out in mid to long term. And it's kind of a -- the FX ended up incorporating more than enough the inflation of the local market. And in the end, this kind of evens out on the midterm. But we can expect some volatility in the short term, yes.

And then how much visibility you have on 2022 revenue guidance? 40% organic growth. And excuse me -- like if you already mentioned this, how much is Somo contribution going to be this year?

Jain, from this number, really 41-plus percent is organic, and then we have the rest, 56% is Somo's contribution. In terms of visibility for the expense part, that is basically the majority of this growth, we have full visibility by now. And I think there is -- I think the part that we have less certain is the land part, but the market is -- the demand is really high. We have been able to really onboard new clients every single quarter in a good number in different industry and geographies. So by now the visibility, I would say, is full. I think that as always in this industry and for CI&T, I think the complexity is the way -- is the supply side. And I think we are doing an amazing, good job in the hiring front, training our people, develop our leadership to be able to cope with the demand.

And a quick clarification, just to make sure, organic growth calculation, that does not include incremental contribution from Dextra?

Yes. Dexter was -- we had the integration of Dextra last November. So now is -- we integrate Dextra as 4 new growth units. Now they are operating in our platform. So it's now about organic growth. By now, we have 26 growth units and we are fostering growth in each one of them. So it's -- basically, we are counting. For 2022, CI&T as a platform, growing 41-plus percent, plus Somo as a new growth unit growing in a very good pace that will contribute 56% year-over-year revenue growth.

Thank you, Puneet. We have a question here. Yes, an email from Arturo Langa from Itau BBA. Could you please provide color into the pace and climate for hirings? How are you seeing wage inflation? And are you being able to pass on this to your clients?

I can take this one. Thank you for your question, Arturo. Regarding your first question about hiring. So in 2021, we hired more than 2,300 people, right? So [73%] growth year-over-year. About half of that was incorporation of Dextra. And the other half was just our ability to go to market and hire. So as we're accelerating organic growth, we're also investing more in the support our hiring, training and leadership development teams.

As you know, the market for talent continues to be very competitive. But we believe we have a very strong value proposition to offer to this environment to this -- the professionals in this industry, which is always focused on offering them a place where they can develop their careers the fastest, right? And this has always been very compelling for this market. And it's important to highlight that our hiring strategy is focused on attracting talent on the early stages of their careers. So not in the kind of last minute market for senior people, right?

So just, for example, we just onboarded last month, 400 trainees, right? So, we will develop and prepare to support future growth, right? So overall, our strategy is designed for the long term. So for us, 2022, initiated years ago when we started developing the new leaders and the new key positions that we will take on the new client engagements and the growth that we're expecting in 2022. So, this consistency is what actually guarantees the quality of our services that by consequence, guarantees the high recurrence on the business of our clients.

And so I think just to finalize that point, we're very comfortable that we are also operating in very big talent pools in US, of course, which is the biggest one, in Brazil, which is the second biggest in Latin America time zone. So -- and now we are kind of diversifying, getting into Colombia, which is an important Latin American market that we just got into through the Somo acquisition.

Second part of the question is about inflation. We covered a little bit, but maybe just add that we were seeing happening this across the board, right, the wage inflation. But that's happening more on developed countries where the shortage of tech talent is higher than in emerging countries. And -- but at the end of the day, it will create a price elasticity that will help us do the price adjustments with our clients along the way. And we've been very successful in doing this year-over-year based on our close relationship and the value we create to our clients.

Thank you, Bruno. Our next question comes from Rodrigo Gastim from Clave Capital.

Considering the Somo acquisition, how should we expect the growth breakdown among the different regions? Should we expect the growth pace in Europe similar than in the US? And regarding the 2022 guidance, how much of the revenue and EBITDA comes from Somo?

Well, I think we already talked about the contribution of Somo. In terms of regions, I think the acquisition of Somo was a very important move to really put Europe, especially UK as a main source of growth for CI&T. Europe is the second largest market in the world for digital. And we have now an amazing platform, reputation, skills, strategic -- strategy skills, design skills and, of course, full stack technology skills to operate there. So, you are right. We are really foreseeing a very aggressive growth in UK as we have been doing in the US.

Thank you, Cesar. So that concludes the questions we have from e-mail. Would you like to extend here to see if some of the analysts, Ashwin, Diego, Puneet, would like to do a follow-up call, follow-up question?

Well, with that, thank you all -- with that we...

Sorry, Eduardo. Yes.

Go ahead, Diego.

Apologies. Yes. I was trying to unmute my phone. So just a quick question. Can you just comment on the attrition rate for 2021 and how this compared to 2020? I know that 2020 was a year -- a very different year, right, because of COVID. But I just want to understand what are the trends in there.

Well, I can take that one.

Bruno is on mute. But Stanley, can you take this one?

Well, we have 15.6% of attrition. And mainly, we see 2 effects that -- of course, we have the market conditions, current market conditions. If you compare 2021 to 2020, 2020, we had this -- the first year of the pandemic and we had a -- the higher rate of retention at that time in terms of uncertainties of the market, et cetera. And then later down the road, we had the opposite effect. We played very well in the field as we continue to be a reference in the market even in comparing to our peers.

And of course, we have this -- the acquisition of Dextra that came in with a higher attrition. But already, we incorporated, as mentioned -- as Cesar mentioned, and we are driving their attrition to our lower levels, let's say. So if you compare this higher attrition comparing to 2020, most -- 2 biggest factors are those 2 that I mentioned.

Diego, just adding, I think there's another KPI, very important that we are monitoring carefully. Our leadership attrition in 2021 was only 3.6%, that allow us really to continue projecting consistent growth and net revenue retention -- higher net revenue retention rate. I think it's important not to look only at the overall attrition, but the leadership attrition. At the end of the day, leadership is the main bottleneck for growth in this space.

It's amazing.

Well, that concludes our Q&A session. I'll now pass to Cesar to proceed with his closing remarks.

Sure. So thank you, Eduardo, Stanley, Bruno, for joining us -- for joining me today. Again, thank you all the analysts and all the questions. I want to really take this moment to thank all CI&Ters, clients, investors and partners for their continued support. We continue to be very confident. We will have another great year ahead. And at the end of the day, I think I expect you all will stay safe and well, and looking forward to see you in a couple of months. Thank you.

Thank you all.

Thank you.

Thank you.