CI&T Inc(CINT) - 2022 Q3 - Quarterly Report

Third Quarter 2022 Earnings Release CI&T reported strong third-quarter 2022 financial results, driven by significant revenue growth, improved profitability, and strategic acquisitions Financial and Operational Highlights CI&T achieved strong 3Q22 growth with net revenue up 48.7% to BRL 559.0 million, a significant turnaround to BRL 40.6 million net profit, and a near doubling of high-value clients 3Q22 Key Financial Highlights (vs. 3Q21) | Metric | 3Q22 | Change (YoY) | | :--- | :--- | :--- | | Net Revenue | BRL 559.0 million | +48.7% | | Net Profit | BRL 40.6 million | From BRL 2.2 million Loss | | Adjusted EBITDA | BRL 107.3 million | +34.1% | | Adjusted Net Profit | BRL 69.5 million | +156.7% | | Clients > BRL 1 million Revenue | 147 | +93.4% (from 76) | | Employees (CI&Ters) | 6,887 | +27.6% | 9M22 Key Financial Highlights (vs. 9M21) | Metric | 9M22 | Change (YoY) | | :--- | :--- | :--- | | Net Revenue | BRL 1,575.9 million | +59.6% | | Net Profit | BRL 95.8 million | +16.7% | | Adjusted EBITDA | BRL 293.8 million | +32.2% | | Adjusted Net Profit | BRL 162.9 million | +45.6% | Operational and Financial Performance Review 3Q22 revenue growth was driven by organic expansion and acquisitions, though adjusted gross and EBITDA margins slightly contracted due to acquisition-related costs, showing sequential improvement - Net revenue in 3Q22 was BRL 559.0 million, a 48.7% increase YoY (51.3% at constant currency), with acquisitions contributing 14 percentage points to this growth[12] - The company added 20 new clients with annual revenue above BRL 1.0 million, increasing the total from 127 in 2Q22 to 147 in 3Q22[13] - Adjusted gross profit margin slightly decreased to 36.9% from 37.1% in 3Q21, mainly due to lower margins from newly acquired companies[14] - Adjusted EBITDA margin decreased to 19.2% from 21.3% in 3Q21, impacted by increased SG&A expenses, but showed sequential improvement from 17.5% in 1Q22 and 19.1% in 2Q22[16] - Net profit for 3Q22 was BRL 40.6 million, a significant improvement from a net loss of BRL 2.2 million in 3Q21, with Adjusted net profit growing 156.7% to BRL 69.5 million[19] Business Outlook CI&T raised its full-year 2022 guidance, projecting at least BRL 605 million in Q4 net revenue and at least 58% constant currency growth for the full year Financial Guidance | Period | Metric | Guidance | | :--- | :--- | :--- | | Q4 2022 | Net Revenue | At least BRL 605 million | | | Net Revenue Growth (Constant Currency) | 41% YoY | | Full Year 2022 | Net Revenue Growth (Constant Currency) | At least 58% YoY | | | Net Revenue Growth (Reported) | At least 51% YoY | | | Adjusted EBITDA Margin | At least 19% | Non-IFRS Measures and Reconciliation The company uses non-IFRS measures like Adjusted EBITDA and Adjusted Net Profit to clarify operational performance by excluding non-recurring items, with 3Q22 Adjusted EBITDA at BRL 107.3 million - The company uses non-IFRS measures like Adjusted Gross Profit, Adjusted EBITDA, and Adjusted Net Profit to enhance understanding of its financial performance by excluding items not related to direct management of services[28] Reconciliation of Net Profit to Adjusted EBITDA (3Q22, in BRL thousands) | Description | Amount | | :--- | :--- | | Net profit for the period | 40,608 | | Net financial cost | 7,432 | | Income tax expense | 16,537 | | Depreciation and amortization | 23,558 | | Stock-based compensation | 761 | | Write-off and Impairment | 2,156 | | Acquisition-related expenses | 16,497 | | Other adjustments | (204) | | Adjusted EBITDA | 107,343 | Reconciliation of Net Profit to Adjusted Net Profit (3Q22, in BRL thousands) | Description | Amount | | :--- | :--- | | Net profit for the period | 40,608 | | Write-off and Impairment | 2,156 | | Acquisition-related expenses | 26,743 | | Adjusted Net Profit | 69,507 | Unaudited Condensed Consolidated Interim Financial Statements The unaudited condensed consolidated interim financial statements detail the company's financial position, performance, and cash flows, reflecting significant growth and strategic acquisitions Consolidated Financial Statements The consolidated financial statements for 9M 2022 show significant growth, with total assets reaching BRL 2.43 billion and net revenue at BRL 1.58 billion, despite a net cash outflow from operating activities Statement of Profit or Loss For 9M 2022, net revenue surged 59.6% to BRL 1,575.9 million, with gross profit increasing 56.3% and net profit growing 16.7% to BRL 95.8 million Key Profit or Loss Items (in BRL thousands) | Metric | 9M 2022 | 9M 2021 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | 1,575,905 | 987,586 | +59.6% | | Gross Profit | 541,794 | 346,600 | +56.3% | | Operating Profit | 187,374 | 165,746 | +13.0% | | Net Profit for the period | 95,830 | 82,129 | +16.7% | | Earnings per share – basic (in BRL) | 0.72 | 0.68 | +5.9% | Statement of Financial Position As of September 30, 2022, total assets reached BRL 2.43 billion, with a significant shift from cash to intangible assets and goodwill due to acquisitions Key Balance Sheet Items (in BRL thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and financial investments | 333,707 | 934,513 | | Intangible assets and goodwill | 1,123,626 | 738,803 | | Total Assets | 2,429,911 | 2,362,344 | | Liabilities & Equity | | | | Loans and borrowings | 706,358 | 788,709 | | Accounts payable for business combination | 119,226 | 85,726 | | Total Liabilities | 1,324,507 | 1,273,049 | | Total Equity | 1,105,404 | 1,089,295 | Statement of Cash Flows For 9M 2022, the company reported a net cash outflow from operating activities of BRL 60.7 million, with investing activities generating BRL 176.0 million, primarily from financial investment redemptions Cash Flow Summary (9M 2022 vs 9M 2021, in BRL thousands) | Activity | 9M 2022 | 9M 2021 | | :--- | :--- | :--- | | Net cash (used in)/from operating activities | (60,711) | 39,451 | | Net cash from/(used in) investment activities | 175,987 | (663,896) | | Net cash (used in)/from financing activities | (102,800) | 585,724 | | Net (decrease)/increase in cash | 12,476 | (38,721) | - Cash used for acquisitions in 9M 2022 totaled BRL 321.8 million for Somo, Box 1824, and Transpire, offset by a BRL 582.4 million redemption of financial investments[55] Notes to the Financial Statements The notes detail significant accounting policies and events, focusing on 2022 business combinations, diversified revenue streams, financial risk management, and stock-based compensation plans Business Combinations In 2022, CI&T significantly expanded its global presence and capabilities through strategic acquisitions of Somo, Box 1824, and Transpire, adding substantial goodwill - Acquired Somo Global Ltd on January 27, 2022, for a total consideration of BRL 447.4 million, resulting in BRL 317.2 million of goodwill[76][79][83] - Acquired Box 1824 on June 1, 2022, for a total consideration of BRL 34.2 million, resulting in BRL 21.5 million of goodwill[85][89][96] - Acquired Transpire Technology Pty Ltda on September 1, 2022, for a total consideration of BRL 76.6 million, resulting in a preliminary goodwill of BRL 75.0 million[100][103][108] - Subsequent to the reporting period, on November 1, 2022, the company completed the acquisition of NTERSOL Consulting LLC to expand its financial services expertise in North America[286] Revenue Analysis The company's 9M 2022 net revenue, primarily from software development, is diversified across geographies and industries, with NAE as the largest region and financial services as the top vertical Net Revenue by Geography (9M22, in BRL thousands) | Region | 9M22 Revenue | % of Total | | :--- | :--- | :--- | | NAE (North America & Europe) | 798,751 | 50.7% | | LATAM (Latin America) | 724,480 | 46.0% | | APJ (Asia, Pacific & Japan) | 52,674 | 3.3% | | Total | 1,575,905 | 100.0% | Net Revenue by Industry (9M22, in BRL thousands) | Industry | 9M22 Revenue | % of Total | | :--- | :--- | :--- | | Financial Services | 476,250 | 30.2% | | Food and Beverages | 316,891 | 20.1% | | Technology, Media and Telecom | 215,153 | 13.7% | | Pharmaceuticals and Cosmetics | 208,837 | 13.3% | | Others | 358,774 | 22.7% | | Total | 1,575,905 | 100.0% | - The top client accounted for 16% of net revenue in 9M22 (BRL 249.4 million), while the top 10 clients accounted for 51.6% (BRL 812.8 million)[285] Financial Instruments and Risk Management The company manages foreign exchange risk, primarily from USD and GBP revenue exposure against BRL expenses, through cash flow hedge accounting using non-derivative financial instruments - The Group is exposed to foreign exchange risk as revenue is mainly in foreign currency while expenses are mainly in BRL[230][231] - The company applies cash flow hedge accounting to mitigate exchange rate risk on highly probable future acquisitions and future export revenues, using non-derivative financial instruments like USD-denominated investments and debt[234][241] Net Foreign Currency Exposure (as of Sep 30, 2022, in BRL thousands) | Currency | Net Exposure | | :--- | :--- | | USD | 169,030 | | GBP | (47,817) | | Other | 8,795 | Stock Option and Share-Based Compensation The company maintains various stock option and share-based compensation plans to incentivize employees, with BRL 1.9 million in expenses recognized for 9M 2022 - The company has multiple stock option plans, including equity-settled and cash-settled programs, which were migrated from its Brazilian subsidiary to the parent company during its corporate restructuring[167][181] - A new equity-settled stock option plan was approved on June 9, 2022[177] - Total expenses related to share-based compensation recognized in the statement of profit or loss for the nine months ended September 30, 2022, were BRL 1,894 thousand[192]