CI&T Inc(CINT) - 2023 Q2 - Quarterly Report

1Q23 Earnings Release Operating and Financial Highlights CI&T reported strong Q1 2023 results, with significant year-over-year growth in net revenue, net profit, and adjusted EBITDA 1Q23 Key Financial and Operating Metrics (BRL million, vs. 1Q22) | Metric | 1Q23 | 1Q22 | Change | | :--- | :--- | :--- | :--- | | Net Revenue | BRL 610.0 million | BRL 491.9 million | +24.0% | | Net Profit | BRL 52.4 million | BRL 29.2 million | +79.2% | | Adjusted EBITDA | BRL 116.5 million | BRL 84.5 million | +37.9% | | Adjusted EBITDA Margin | 19.1% | 17.2% | +1.9 p.p. | | Adjusted Net Profit | BRL 67.2 million | BRL 39.5 million | +70.0% | | Cash from Operations | BRL 116.5 million | -BRL 47.0 million | N/A | | Clients > BRL 1M Revenue (LTM) | 180 | 110 | +63.6% | Comments on Financial Performance Q1 2023 revenue growth was driven by regional expansion, maintaining gross profit margin and improving SG&A efficiency - Net revenue grew 24.0% YoY (24.3% at constant currency), with growth observed in all operating regions[270] - Adjusted Gross Profit Margin was 35.1%, in line with the 35.2% margin in 1Q22[13][26] - SG&A and other operating expenses as a percentage of revenue decreased to 19.1% in 1Q23 from 20.4% in 1Q22, indicating improved operational efficiency[280] - Net financial expenses rose 19.5% YoY to BRL 20.0 million, primarily due to higher debt, increased interest rates, and a negative foreign exchange variation[271] - Adjusted Net Profit margin expanded by 3 percentage points to 11.0%, benefiting from SG&A dilution and lower income tax[14] Business Outlook CI&T forecasts Q2 2023 net revenue of at least BRL 570 million, maintaining full-year revenue growth and EBITDA margin guidance 2023 Business Outlook | Period | Metric | Guidance | | :--- | :--- | :--- | | Q2 2023 | Net Revenue | At least BRL 570 million | | Full Year 2023 | Net Revenue Growth (Constant Currency) | 13% to 17% YoY | | Full Year 2023 | Adjusted EBITDA Margin | At least 19% | Non-IFRS Financial Measures and Reconciliations The company uses non-IFRS measures like Adjusted Gross Profit, EBITDA, and Net Profit to clarify operational performance - CI&T uses non-IFRS measures like Adjusted Gross Profit, Adjusted EBITDA, Adjusted Net Profit, and Net Revenue at Constant Currency to enhance investor understanding of its financial performance, excluding items not directly related to service management[48] Reconciliation of Gross Profit to Adjusted Gross Profit (in BRL thousand) | Description | 1Q23 | 1Q22 | | :--- | :--- | :--- | | Gross Profit (IFRS) | 202,130 | 162,880 | | Depreciation and amortization | 9,410 | 9,318 | | Stock-based compensation | 2,376 | 1,182 | | Adjusted Gross Profit | 213,916 | 173,380 | | Adjusted Gross Profit Margin | 35.1% | 35.2% | Reconciliation of Net Profit to Adjusted EBITDA (in BRL thousand) | Description | 1Q23 | 1Q22 | | :--- | :--- | :--- | | Net profit for the period (IFRS) | 52,382 | 29,223 | | Net financial cost | 19,968 | 16,712 | | Income tax expense | 11,723 | 15,314 | | Depreciation and amortization | 25,053 | 19,390 | | Stock-based compensation | 5,393 | 1,239 | | Government grants | (140) | (58) | | Acquisition-related expenses | 2,124 | 2,695 | | Adjusted EBITDA | 116,504 | 84,515 | | Adjusted EBITDA Margin | 19.1% | 17.2% | Reconciliation of Net Profit to Adjusted Net Profit (in BRL thousand) | Description | 1Q23 | 1Q22 | | :--- | :--- | :--- | | Net profit for the period (IFRS) | 52,382 | 29,223 | | Acquisition-related expenses | 14,836 | 10,323 | | Adjusted Net Profit | 67,218 | 39,546 | | Adjusted Net Profit Margin | 11.0% | 8.0% | Unaudited Condensed Consolidated Interim Financial Statements Statement of Financial Position CI&T's total assets were BRL 3.018 billion as of March 31, 2023, with liabilities at BRL 1.631 billion and equity at BRL 1.387 billion Condensed Statement of Financial Position (in BRL thousands) | Account | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | 3,018,407 | 3,026,763 | | Cash and cash equivalents | 251,550 | 185,727 | | Intangible assets and goodwill | 1,719,226 | 1,750,898 | | Total Liabilities | 1,631,338 | 1,688,584 | | Loans and borrowings | 948,324 | 974,231 | | Accounts payable for business combination | 204,686 | 204,949 | | Total Equity | 1,387,069 | 1,338,179 | Statement of Profit or Loss CI&T reported Q1 2023 net revenue of BRL 610.0 million (up 24.0%) and net profit of BRL 52.4 million (up 79.2%) Condensed Statement of Profit or Loss (in BRL thousands) | Account | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Net Revenue | 609,991 | 491,872 | | Gross Profit | 202,130 | 162,880 | | Operating profit | 84,073 | 61,249 | | Profit before Income tax | 64,105 | 44,537 | | Net profit for the period | 52,382 | 29,223 | | Earnings per share – basic (in BRL) | 0.39 | 0.22 | Statement of Cash Flows In Q1 2023, CI&T generated BRL 93.1 million net cash from operating activities, a strong turnaround from prior year Condensed Statement of Cash Flows (in BRL thousands) | Activity | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Net cash from (used in) operating activities | 93,072 | (72,719) | | Net cash from (used in) investment activities | (2,773) | 92,830 | | Net cash used in financing activities | (23,269) | (39,843) | | Net increase/(decrease) in cash | 67,030 | (19,732) | | Cash and cash equivalents at end of period | 251,550 | 131,827 | Notes to the Financial Statements The notes detail accounting policies, business combinations, intangible assets, revenue, expenses, and risk management Note 1 & 2: Reporting Entity and Business Combination CI&T Inc. is a holding company developing software solutions, completing several acquisitions in 2022 including Somo and Ntersol - The company is a holding entity for subsidiaries that develop customizable software solutions, including AI, analytics, and cloud technologies[302] - In 2022, the company acquired Somo, Box 1824, Transpire, and Ntersol. The total consideration transferred for these acquisitions was BRL 447.4 million, BRL 34.2 million, BRL 77.3 million, and BRL 664.7 million, respectively[35][303] Note 11: Intangible Assets and Goodwill Intangible assets and goodwill totaled BRL 1.719 billion as of March 31, 2023, mainly comprising goodwill and customer relationships Intangible Assets and Goodwill Breakdown (in BRL thousands) | Asset | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Customer relationship | 274,890 | 288,943 | | Brands | 5,849 | 7,464 | | Software & Other | 21,488 | 21,567 | | Goodwill | 1,416,999 | 1,432,894 | | Total | 1,719,226 | 1,750,898 | Goodwill by Acquisition (in BRL thousands) | Acquisition | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Dextra | 595,721 | 595,721 | | Ntersol | 456,887 | 469,235 | | Somo | 260,715 | 260,466 | | Transpire | 61,187 | 63,702 | | Other | 42,489 | 47,470 | | Total Goodwill | 1,416,999 | 1,432,894 | Note 13: Loans and Borrowings Total loans and borrowings were BRL 948.3 million as of March 31, 2023, with compliance to financial covenants maintained - Total loans and borrowings were BRL 948.3 million, with BRL 233.6 million classified as current and BRL 714.7 million as non-current[116][355] - The debt contracts include covenants, such as maintaining a specific Net Debt to EBITDA ratio, which could trigger early maturity if breached[140][264] - The company was in compliance with all loan covenants as of March 31, 2023[357] Note 18: Stock-based Compensation The Group maintains equity and cash-settled stock-based compensation plans, with Q1 2023 expenses at BRL 5.4 million - The company has multiple stock-based payment arrangements, including Stock Option Plans (SOP), Incentive Stock Options (ISO), and Restricted Stock Units (RSU) for its employees[147][124] - Total stock-based compensation expense recognized in profit or loss for Q1 2023 was BRL 5.39 million, compared to BRL 1.24 million in Q1 2022[130] - As of March 31, 2023, there were 4,131,273 outstanding stock options and 1,437,030 outstanding RSUs[130] Note 20: Net Revenue Q1 2023 net revenue was BRL 610.0 million, mainly from software development, with Technology and Telecommunications leading growth Net Revenue by Type (in BRL thousands) | Revenue Type | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Software development | 580,876 | 470,662 | | Software maintenance | 17,020 | 13,380 | | Consulting | 10,599 | 5,173 | | Other | 1,506 | 2,657 | | Total net revenue | 609,991 | 491,872 | Net Revenue by Industry Vertical (in BRL thousands) | Industry Vertical | March 31, 2023 | March 31, 2022 | Change YoY | | :--- | :--- | :--- | :--- | | Financial services | 174,783 | 156,326 | +11.8% | | Technology and telecommunications | 125,060 | 68,056 | +83.8% | | Consumer goods | 116,156 | 104,369 | +11.3% | | Retail and industrial goods | 75,814 | 73,222 | +3.5% | | Life sciences | 63,281 | 62,893 | +0.6% | | Others | 54,897 | 27,006 | +103.3% | | Total net revenue | 609,991 | 491,872 | +24.0% | - Revenue from a single customer represented 11.1% of total net revenues as of March 31, 2023, down from 15.4% in the prior year period[254] Note 21: Expenses by Nature Total costs and expenses for Q1 2023 were BRL 525.9 million, with employee expenses as the largest component Expenses by Nature (in BRL thousands) | Expense Category | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Employee expenses | (443,313) | (365,596) | | Third-party services and other inputs | (34,070) | (24,226) | | Depreciation and amortization | (25,053) | (19,390) | | Stock-based compensation | (5,393) | (1,239) | | Other costs and expenses | (17,789) | (18,072) | | Total | (525,918) | (430,623) | Note 24: Earnings Per Share For Q1 2023, basic EPS was BRL 0.39 and diluted EPS was BRL 0.38, based on net profit of BRL 52.4 million Earnings Per Share Calculation | Metric | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | Net Profit (in BRL thousands) | 52,382 | 29,223 | | Weighted average basic shares | 133,834,456 | 132,639,430 | | Basic EPS (in BRL) | 0.39 | 0.22 | | Weighted average diluted shares | 137,279,821 | 132,963,392 | | Diluted EPS (in BRL) | 0.38 | 0.22 | Note 25: Financial Instruments and Risk Management The Group manages market, credit, and liquidity risks, utilizing hedges and swaps for foreign currency and interest rate exposures - The Group is exposed to foreign exchange risk as revenue is mainly denominated in foreign currency while expenses are mainly in Brazilian Reais (BRL)[194][215] - To mitigate currency risk, the company uses cash flow hedge accounting, designating non-derivative financial instruments (long-term debt in USD) to hedge highly probable future export revenues[179][215] - The company is exposed to interest rate risk from changes in CDI, LIBOR, and SOFR on its financial assets and liabilities. It uses interest rate swaps to hedge this exposure[201][221][229] - Credit risk is managed by analyzing the financial condition of counterparties and setting credit limits. The maximum credit risk exposure from financial assets was BRL 1.068 billion as of March 31, 2023[241][243] - Liquidity risk is managed through cash flow projections and maintaining credit lines to ensure funds are available to meet obligations[208][245] Share Repurchase Program CI&T's Board approved a share repurchase program for up to 1.5 million Class A common shares over a 12-month term - The Board of Directors approved a share repurchase program for up to 1.5 million Class A common shares[238][258] - The program has a term of 12 months and was established to meet obligations from stock-based compensation plans and M&A deals[273][260] - Repurchases may occur through open market purchases, privately negotiated transactions, or other means, and the program can be suspended or discontinued at any time[262]