CI&T Inc(CINT) - 2023 Q3 - Quarterly Report

2Q23 Earnings Release Operating and Financial Highlights CI&T achieved strong Q2 and H1 2023 growth, with net revenue and profit significantly increasing, alongside improved client metrics and cash flow Q2 2023 Financial Highlights (vs. Q2 2022) | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Net Revenue (BRL) | 571.8M | 525.0M | +8.9% | | Net Profit (BRL) | 47.8M | 26.0M | +84.0% | | Adjusted EBITDA (BRL) | 114.2M | 100.4M | +13.8% | | Adjusted Net Profit (BRL) | 63.1M | 52.3M | +20.8% | | Adjusted EBITDA Margin (%) | 20.0% | 19.1% | +0.9 p.p. | | Clients > BRL 1M Revenue (LTM) | 183 | 127 | +44.1% | 6M 2023 Financial Highlights (vs. 6M 2022) | Metric | 6M 2023 | 6M 2022 | Change | | :--- | :--- | :--- | :--- | | Net Revenue (BRL) | 1,181.8M | 1,016.9M | +16.2% | | Net Profit (BRL) | 100.2M | 55.2M | +81.5% | | Adjusted EBITDA (BRL) | 230.7M | 184.9M | +24.8% | | Adjusted Net Profit (BRL) | 130.3M | 91.8M | +42.0% | | Operating Cash Flow (BRL) | 117.6M | (87.1M) | N/A | Business Overview and Management Commentary Management emphasizes pioneering enterprise AI for digital transformation, supported by diversified revenue across geographies and key industry verticals - The company's strategic vision is to pioneer the enterprise adoption of Artificial Intelligence, aiming to enhance productivity, quality, and progress in a reliable and secure framework[7][8][31] Q2 2023 Revenue Breakdown | Breakdown | Percentage (%) | | :--- | :--- | | By Geography | | | North America | 45% | | Latam | 40% | | Europe | 10% | | Asia Pacific | 5% | | By Industry | | | Financial Services & Consumer Goods | Most relevant | | Technology & Telecommunications | Grew in relevance | Financial Performance Analysis Q2 2023 profitability improved, with higher Adjusted EBITDA and Net Profit margins driven by SG&A efficiency and reduced income tax expense - Adjusted EBITDA margin increased by 0.9 percentage points to 20.0% in Q2 2023, primarily due to lower SG&A expenses as a percentage of revenue[9] - Adjusted Net Profit margin grew by 1.0 percentage point to 11.0% in Q2 2023, mainly due to SG&A dilution and lower income tax expenses[11] - Income tax expense in Q2 2023 decreased by 37.3% compared to Q2 2022, largely because of the amortization of goodwill for tax purposes[127] Business Outlook The company updated its 2023 full-year guidance, projecting net revenue growth and an Adjusted EBITDA margin of at least 19%, with Q3 revenue forecasts 2023 Full-Year Guidance | Metric | Guidance | | :--- | :--- | | Net Revenue Growth (Constant Currency) | 4.0% to 8.0% YoY | | Adjusted EBITDA Margin | At least 19% | - For Q3 2023, net revenue is expected to be at least BRL 545 million at constant currency, which translates to BRL 525 million on a reported basis, a 2% decline compared to Q3 2022[120] Share Repurchase Program The Board authorized a share repurchase program for up to 1.5 million shares, with 640,148 shares repurchased by June 30, 2023 - A share repurchase program for up to 1.5 million class A common shares was approved on May 17, 2023, and management expects to continue its execution[100] - As of June 30, 2023, the company held 640,148 shares of its own shares, acquired for BRL 18,476 thousand, under the repurchase program[171] Non-IFRS Financial Measures and Reconciliations Non-IFRS measures like Adjusted EBITDA and Net Profit are used to assess operational performance by excluding specific non-recurring items - Non-IFRS measures like Adjusted Gross Profit, Adjusted EBITDA, and Adjusted Net Profit are used to provide a better understanding of operational performance by excluding items like acquisition expenses, stock-based compensation, and certain depreciation/amortization[37][39][101] Reconciliation of Net Profit to Adjusted EBITDA (in BRL thousand) | Description | Q2 2023 (BRL thousand) | Q2 2022 (BRL thousand) | 6M 2023 (BRL thousand) | 6M 2022 (BRL thousand) | | :--- | :--- | :--- | :--- | :--- | | Net profit for the period | 47,839 | 25,999 | 100,222 | 55,222 | | Net financial cost | 18,482 | 17,533 | 38,451 | 34,245 | | Income tax expense | 11,298 | 18,016 | 23,021 | 33,330 | | Depreciation and amortization | 23,056 | 24,205 | 48,109 | 43,596 | | Stock-based compensation | 9,719 | (106) | 15,112 | 1,133 | | Acquisition-related expenses | 3,965 | 14,859 | 6,089 | 17,554 | | Adjusted EBITDA | 114,222 | 100,391 | 230,727 | 184,906 | Reconciliation of Net Profit to Adjusted Net Profit (in BRL thousand) | Description | Q2 2023 (BRL thousand) | Q2 2022 (BRL thousand) | 6M 2023 (BRL thousand) | 6M 2022 (BRL thousand) | | :--- | :--- | :--- | :--- | :--- | | Net profit for the period | 47,839 | 25,999 | 100,222 | 55,222 | | Acquisition-related expenses | 15,274 | 26,255 | 30,110 | 36,578 | | Adjusted Net Profit | 63,113 | 52,254 | 130,332 | 91,800 | Unaudited Condensed Consolidated Interim Financial Information Consolidated Financial Statements Unaudited 6M 2023 financial statements show stable assets, increased net profit, and a significant positive shift in operating cash flow Statement of Financial Position Total assets slightly decreased to BRL 2.82 billion, while equity increased to BRL 1.40 billion and liabilities decreased Key Balance Sheet Items (in BRL thousand) | Account | June 30, 2023 (BRL thousand) | Dec 31, 2022 (BRL thousand) | | :--- | :--- | :--- | | Total Assets | 2,817,991 | 3,026,763 | | Cash and cash equivalents | 149,232 | 185,727 | | Intangible assets and goodwill | 1,673,996 | 1,750,898 | | Total Liabilities | 1,421,207 | 1,688,584 | | Loans and borrowings | 863,354 | 974,231 | | Total Equity | 1,396,784 | 1,338,179 | Statement of Profit or Loss 6M 2023 net profit reached BRL 100.2 million on BRL 1.18 billion revenue, driven by growth and expense control Income Statement Summary (in BRL thousand) | Metric | 6M 2023 (BRL thousand) | 6M 2022 (BRL thousand) | | :--- | :--- | :--- | | Net Revenue | 1,181,824 | 1,016,887 | | Gross Profit | 399,767 | 346,393 | | Operating Profit | 161,694 | 122,797 | | Net Profit for the period | 100,222 | 55,222 | | Basic EPS (in BRL) | 0.75 | 0.42 | Statement of Cash Flows 6M 2023 operating cash flow significantly improved to BRL 62.1 million, driven by profit and working capital management Cash Flow Summary (in BRL thousand) | Cash Flow Activity | 6M 2023 (BRL thousand) | 6M 2022 (BRL thousand) | | :--- | :--- | :--- | | Net cash from (used in) operating activities | 62,108 | (149,736) | | Net cash from investment activities | 48,731 | 225,143 | | Net cash used in financing activities | (144,427) | (115,042) | | Net decrease in cash and cash equivalents | (33,588) | (39,635) | Notes to the Financial Statements Notes detail revenue by service, industry, and geography, alongside financial risk management strategies and loan covenant compliance Net Revenue (Note 19) Software development drives 95% of 6M 2023 revenue, with financial services and North America as leading segments Net Revenue by Type - 6M 2023 (in BRL thousand) | Service Type | Revenue (BRL thousand) | % of Total | | :--- | :--- | :--- | | Software development | 1,124,217 | 95.1% | | Software maintenance | 32,815 | 2.8% | | Consulting | 20,736 | 1.8% | | Other | 4,056 | 0.3% | | Total | 1,181,824 | 100% | Net Revenue by Industry Vertical - 6M 2023 (in BRL thousand) | Industry | Revenue (BRL thousand) | % of Total | | :--- | :--- | :--- | | Financial services | 333,814 | 28.2% | | Consumer goods | 238,149 | 20.2% | | Technology and telecommunications | 229,187 | 19.4% | | Retail and industrial goods | 143,913 | 12.2% | | Life sciences | 127,668 | 10.8% | | Others | 109,093 | 9.2% | | Total | 1,181,824 | 100% | - The top client represented 11% of total net revenues as of June 30, 2023, a decrease from 16% in the same period of 2022, indicating reduced client concentration[173] Intangible Assets and Goodwill (Note 10) Intangible assets and goodwill totaled BRL 1.67 billion, with no impairment indicators identified for the period Intangible Assets and Goodwill (in BRL thousand) | Asset | June 30, 2023 (BRL thousand) | Dec 31, 2022 (BRL thousand) | | :--- | :--- | :--- | | Customer relationship | 257,875 | 288,943 | | Goodwill | 1,387,979 | 1,432,894 | | Other Intangibles | 28,143 | 29,062 | | Total | 1,673,996 | 1,750,898 | - Management concluded that no impairment indicator for intangible assets and goodwill was identified for the six-month period ended June 30, 2023[145] Financial Instruments and Risk Management (Note 24) The company manages market, credit, and liquidity risks through hedging strategies, counterparty analysis, and cash flow projections - The Group uses non-derivative financial instruments (USD-denominated debt) as a cash flow hedge against the foreign exchange risk of its highly probable future export revenues in U.S. dollars[218] - The Group is transitioning from LIBOR to alternative rates like SOFR for its financial instruments and has implemented appropriate fallback clauses[188][214] - Credit risk is managed by holding cash and financial investments with bank counterparties rated from BB- to A+ by Standard & Poor's[231]