Cash and Financial Position - Cash and cash equivalents increased to R211,638thousandasofDecember31,2023,upfromR185,727 thousand in 2022[521] - Financial investments decreased significantly to R3,164thousandin2023fromR96,299 thousand in 2022[521] - Total credit risk exposure decreased to R872,092thousandin2023fromR1,054,064 thousand in 2022[521] - Net foreign exchange exposure increased to R41,172thousandin2023fromR42,432 thousand in 2022[522] - The company signed a working capital loan contract for R49.5million(US10 million) with interest SOFR 6 months + 2.80% on March 1, 2024[546] - Cash and cash equivalents as of December 31, 2023, were R211,638thousand,upfromR185,727 thousand at the end of 2022[597] - Cash generated from operating activities in 2023 was R414,296thousand,asignificantincreasefromR160,656 thousand in 2022[595] - Net cash from operating activities in 2023 was R295,242thousand,comparedtoR36,092 thousand in 2022[595] - Redemption of financial investments in 2023 was R90,298thousand,asharpdecreasefromR655,533 thousand in 2022[595] - Proceeds from loans and borrowings in 2023 were R205,093thousand,adecreasefromR527,507 thousand in 2022[597] - Payment of loans and borrowings in 2023 was R407,013thousand,higherthanR350,571 thousand in 2022[597] - Repurchase of treasury shares in 2023 amounted to R43,414thousand[597]−TotalassetsdecreasedtoR2,716,891 thousand in 2023 from R3,002,958thousandin2022[583]−LoansandborrowingsdecreasedsignificantlytoR112,719 thousand in 2023 from R236,030thousandin2022[583]−TotalequitygrewtoR1,411,251 thousand in 2023, up 7.9% from R1,307,973thousandin2022[583]−TotalequityincreasedfromR1,089,295 thousand in 2021 to R1,307,973thousandin2023,reflectingoverallfinancialgrowth[591]−SharecapitalincreasedfromR36 thousand in 2021 to R37thousandin2023,reflectingminimalchangesinequitystructure[591]−RetainedearningsreservegrewfromR125,957 thousand in 2021 to R221,667thousandin2023,indicatingstrongprofitretention[591]FinancialPerformance−Netprofitfortheyear2023wasR132,573 thousand, compared to R95,710thousandin2022andR125,957 thousand in 2021[588] - Exchange differences on translation of foreign operations resulted in a loss of R48,153thousandin2023,comparedtoalossofR84,840 thousand in 2022 and a gain of R23,830thousandin2021[588]−Cashflowhedges−effectiveportionofchangesinfairvaluecontributedR13,203 thousand in 2023, compared to a loss of R15,532thousandin2022[588]−Totalcomprehensiveincomefortheyear2023wasR97,623 thousand, compared to a loss of R4,662thousandin2022andagainofR149,787 thousand in 2021[588] - Net profit for the year 2023 was R132,573thousand,comparedtoR95,710 thousand in 2022, representing a 38.5% increase[591] - Total comprehensive income for 2023 was R97,623thousand,asignificantimprovementfromalossofR4,662 thousand in 2022[591] - Net revenue for 2023 increased to R2,233,466thousand,up2.12,187,710 thousand in 2022[586] - Gross profit for 2023 was R745,724thousand,aslightdecreasefromR762,491 thousand in 2022[586] - Net profit for 2023 rose to R132,573thousand,a38.595,710 thousand in 2022[586] - Earnings per share (basic) increased to R0.97in2023fromR0.72 in 2022[586] - Operating profit before net finance costs and income tax expense increased to R285,476thousandin2023fromR273,918 thousand in 2022[586] - Total income tax expense decreased to R76,722thousandin2023fromR104,562 thousand in 2022[586] - Net profit for the year 2023 was R132,573thousand,a38.595,710 thousand in 2022[595] - Acquisition of property, plant, and equipment and intangible assets in 2023 amounted to R24,109thousand,slightlyhigherthanR22,967 thousand in 2022[595] Currency and Interest Rate Risks - The company estimates a 2% depreciation for the US dollar and 4% for the British pound against the Real by December 31, 2024[523] - Interest rates are expected to increase by up to 154 basis points for CDI and 60 basis points for SOFR by December 31, 2024[523] - The Brazilian real appreciated 7.8% against the U.S. dollar in 2023, but future volatility could impact the company's operations and profitability[142] - Exchange rate instability in Brazil could restrict access to international capital markets and reduce the U.S. dollar value of the company's results[142] - The company is exposed to fluctuations in foreign currency exchange rates, particularly due to its operations in Brazil and other countries, which could materially impact its financial results and require derivatives transactions to manage exchange rate risk[130] Cybersecurity and Risk Management - The company successfully implemented the ISO 27001 standard with the help of a trusted partner, validated by a third-party market audit firm[557] - The company's cybersecurity risk management processes include oversight of third-party service providers and vendor assessments to ensure compliance with security standards[557] - The board of directors and audit committee oversee information security risks, with regular meetings to discuss significant incidents and potential impacts[558] - The company maintains ISO 27001 certification and conducts annual audits to ensure compliance with cybersecurity standards[559] - CI&T conducts mandatory annual cybersecurity training for all employees, including simulated phishing exercises and real-world case studies[556] - The company has a robust incident response plan that is regularly updated to address evolving cyber threats[556] - CI&T participates in industry cybersecurity initiatives to share best practices and enhance security capabilities[556] - The company's business strategy, results of operations, and financial condition have not been materially affected by cybersecurity threats as of the report date[557] Corporate Governance and Shareholder Structure - The company relies on the foreign private issuer exemption for NYSE corporate governance rules, including not having a majority of independent directors on the board[553] - The company does not intend to establish a separate compensation committee and will continue to rely on Cayman Islands laws for governance practices[553] - The company approved a share repurchase program for up to 2.5 million Class A common shares until December 31, 2024[552] - Dual-class stock structure concentrates voting control with Class B shareholders, limiting influence of Class A shareholders[157] - The company's Class B shareholders have preemptive rights to purchase additional shares, which may impair the company's ability to raise funds on favorable terms[164] - The company's exclusion from major indices like S&P 500 and FTSE Russell due to its dual-class share structure could negatively impact its share price and investor attractiveness[165] - As a foreign private issuer, the company follows Cayman Islands laws, which may provide less shareholder protection compared to U.S. domestic registrants[165] - The company's shareholders may face difficulties in protecting their interests due to the less prescriptive nature of Cayman Islands corporate law[167] - Judgments obtained against the company in U.S. courts may not be enforceable in the Cayman Islands or Brazil, where most of its assets are located[168] - The company's obligations under Class A common shares may only be payable in Brazilian reais, potentially limiting compensation for non-Brazilian investors due to exchange rate fluctuations[168] Acquisitions and Business Expansion - CI&T Brazil completed the acquisition of 100% of Box 1824 in June 2022, which was merged with CI&T Brazil in December 2022[607] - Dextra Inc. was extinct in 2023[607] - CI&T acquired 100% of NTERSOL Consulting LLC in November 2022, later renamed to CI&T Financial Services Solutions, LLC, and Core IP was renamed to CI&T FinTech Services, Inc.[607] - CI&T acquired 100% of Somo Global Ltd and its subsidiaries in January 2022[607] - CI&T acquired 100% of Transpire Technology Pty Ltd in September 2022, later renamed to CI&T Oceania PTY Ltd, and Unconstrained Thinking PTY Ltd was extinct[607] - The company completed acquisitions in 2022 including Somo Global Ltd, Box 1824 Planejamento e Marketing Ltda, Transpire Technology Pty Ltd, and NTERSOL Consulting LLC to expand in EMEA, APAC, and North America[118][119] - CI&T completed multiple acquisitions, including Dextra Group (2021), Somo Global Ltd (2022), Box 1824 (2022), Transpire Technology Pty Ltd (2022), and NTERSOL Consulting LLC (2022) to expand its global capabilities[170][171] Revenue and Market Performance - Net revenue increased by 2.1% in 2023 and 51.5% in 2022 compared to the prior year[111] - 59% of Net revenue in 2023 came from activities outside Brazil, up from 55% in 2022[112] - 54% of Net revenue in 2023 came from clients in North America and Europe, a 2 percentage point increase from 2022[118] - CI&T's net revenue for 2023 was primarily generated from the United States (44%) and Brazil (41%)[170] - CI&T's Net Revenue in 2023 was 2.23 billion, with North America, Europe, Latin America, and Asia Pacific as key regions[205] - CI&T's cost of services includes employee expenses and non-reimbursable project-related costs, such as salaries, benefits, and depreciation[207] - Revenue is concentrated in Financial Services (29%), Consumer Goods (20%), and Technology & Communications (17%) as of December 31, 2023[100] - Financial Services contributed 29.0% of total Net Revenue in 2023, generating 647.06 million[199] - Consumer Goods accounted for 20.1% of total Net Revenue in 2023, with 448.59million[199]−TechnologyandTelecommunicationsrepresented17.3387.29 million[199] - Retail and Industrial Goods made up 12.3% of total Net Revenue in 2023, with 274.56million[199]−LifeSciencescontributed11.1247.04 million[199] - The number of clients generating over R10millioninNetRevenueincreasedto50in2023,upfrom38in2022[197]−TopTenClientsaccountedfor40887.28 million[196] Operational Risks and Challenges - A material weakness in internal control over financial reporting led to the restatement of financial statements for 2022 and 2023[536] - The 2022 financial statements were restated to correct a misstatement, as noted in the audit report[574] - Material weakness identified in deferred income taxes and classification corrections, leading to restatement of financial statements for 2022 and interim periods in 2023[128] - Remediation measures for material weakness are time-consuming and costly, with potential risks of delayed financial reporting and regulatory sanctions[128] - Director and officer liability insurance coverage limited to 10million[128]−Thecompanyfacesrisksrelatedtodatabreachesandsecurityobligations,withpotentialreputationaldamage,clientloss,andsubstantialliabilityifitfailstocomplywithcontractualsecurityrequirements[102]−Thecompanymayfaceunanticipatedliabilitiesordeficienciesfromacquisitions,includinglegal,financial,andreputationalrisks,whichcouldresultinsignificantcostsandharmitsfinancialresults[122]−Thecompany′srelianceonthird−partyopen−sourcesoftwareintroducesrisksofdefects,securityvulnerabilities,andpotentiallitigation,whichcouldadverselyimpactclientsandthecompany′sbusiness[102]−Acquisitionsmayresultingoodwillandintangibleassetimpairments,newregulatoryobligations,andshareholderdilutioniffinancedthroughconvertibledebtorequitysecurities[122]−ThecompanyfacesrisksfrompotentialfutureinflationandgovernmentinterventionsinBrazil,whichcouldharmitsbusinessandshareprice[155]−Thecompany′sperformanceisdependentontheoverallhealthandgrowthoftheBrazilianeconomy,whichisimpactedbyinfrastructurelimitationsandlabormarketvolatility[153]−Thecompany′sClassAcommonsharesmayfacesignificantpricevolatility,particularlyduetofactorssuchasrevenuefluctuations,analystexpectations,andmarkettrends[159]−Thecompanydoesnotanticipatepayingcashdividendsintheforeseeablefuture,asitintendstoretainearningsforbusinessoperationsandgrowth[164]RegulatoryandLegalRisks−Compliancewithanti−corruptionlawssuchastheBrazilianCleanCompanyActandtheU.S.FCPAmayresultinsignificantfinesandreputationalharm[139]−Thecompanyfacesrisksrelatedtodatalocalizationlaws,whichcouldincreaseoperationalcostsandlimitserviceofferingsincertainjurisdictions[135]−TheEconomicSubstanceActintheCaymanIslandsmayimposeadditionalcompliancecostsandaffectthecompany′sbusinessoperations[140]−Failuretoobtainorrenewpropertyoperationlicensescouldresultinfines,suspension,orterminationofoperationsataffectedlocations[140]−Thecompanymayfacelegalproceedings,includingtax,civil,andlaborclaims,whichcoulddivertresourcesandharmitsfinancialcondition[148]−Thecompanyissubjecttoconflictinglegalandregulatoryrequirementsacrossmultiplejurisdictions,increasingcompliancecostsandoperationalrisks[137]−PotentialchangesinBraziliantaxlaws,includingBillofLawNo.3,887/2020andNo.2,337/2021,couldadverselyaffectthecompany′sfinancialresults[137]−Changesininternet−relatedlawsandregulationscouldnegativelyimpactdemandforthecompany′sservicesandincreasecompliancecosts[133]−Thecompanyissubjecttoevolvingprivacyanddataprotectionlaws,whichmayimposesignificantcompliancecostsandrestrictmarketexpansion[135]MarketandIndustryTrends−Thedigitaltransformationservicesmarketisprojectedtoreach3.9 trillion by 2027, with a CAGR of 16.1%[180] - Expenditures on generative AI (GenAI) solutions are expected to reach $151.1 billion by 2027[180] - CI&T launched CI&T/FLOW, an AI-powered platform, in July 2023 to enhance software and digital development efficiency[173] - The company launched the CI&T/FLOW AI-powered platform in July 2023 as part of its AI capabilities expansion[124] - CI&T's Growth Units are industry-agnostic and multidisciplinary, with teams of approximately 10 people dedicated to specific clients or projects[173] - CI&T's Adhocracy managerial approach was featured in a case study at the London Business School in 2020[177] - CI&T has been certified as a "Great Place to Work" in multiple countries, including the US, Canada, and Brazil, for 17 consecutive years[177] - CI&T's five-year average Net Revenue Retention Rate is 120%, indicating strong client retention and expansion[194] - CI&T's Net Revenue Retention Rate averaged 120% over the last five years[173] - CI&T has a global presence with over 6,100 professionals across nine countries[173] Economic and Political Environment - Brazilian inflation rates were 4.62%, 5.79%, and 10.06% as of December 31, 2023, 2022, and 2021, respectively[155] - The SELIC rate target in Brazil was 11.75% p.a. as of December 31, 2023, after a gradual decrease from 13.75% p.a. in August 2022[155] - Brazil's sovereign credit ratings as of the report date were BB- positive (S&P), Ba2 stable (Moody's), and BB- stable (Fitch)[158] - Brazilian GDP growth was 2.9% for the year ended December 31, 2023, following growth of 2.9% in 2022 and 4.6% in 2021[153] - Brazil's credit rating was downgraded to BB- by S&P in January 2018 and maintained at BB- with a stable outlook by Fitch in 2022[156] - The Brazilian economy experienced a contraction of 4.1% in 2020, followed by growth of 4.6% in 2021 and 2.9% in 2022 and 2023[153] - Brazilian government policies and economic conditions could significantly impact the company's operations and share price[151] - Emerging market developments, including financial instability, could impact import/export operations, consumer demand, and profitability[110] - Liquidity issues in the financial services industry, such as bank failures, could disrupt access to funds and affect business operations[110] Employee and Workforce Management - Employee utilization rates are critical to profitability, with factors including project transitions, demand forecasting, skill deployment, attrition management, and training impacting margins[94] - The technology industry experiences high workforce turnover, and the company competes for skilled IT personnel, with high attrition rates potentially increasing hiring and training costs and affecting business growth[92] - Misjudging demand patterns could lead to idle capacity, employee layoffs, or shortages, impacting revenue and profit margins if senior employees are deployed on projects without passing higher rates to clients[95] - The company's future success heavily depends on the continued services of its senior management team, particularly the CEO and key executives of acquired companies, with stock options vesting periods ranging from 5 to 7 years to incentivize retention[130] - The company faces intense competition for senior executives and key employees, and the loss of such personnel could disrupt business operations, lead to client loss, and result in unauthorized disclosure of technical knowledge[130]
CI&T Inc(CINT)2024-03-28 10:05