CI&T Reports Solid Results in 1Q23

May 19, 2023 at 07:19 AM EDT

CI&T (NYSE: CINT, “Company”), a global digital specialist, today announces its results for the first quarter of 2023 (1Q23) in accordance with International Financial Reporting Standards (IFRS). For comparison purposes, we refer to the results for the first quarter of 2022 (1Q22).

First Quarter of 2023 Operating and Financial Highlights

Net Revenue was R$610.0 million, an increase of 24.0% compared to 1Q22 or a 24.3% growth at constant currency.
The number of clients with annual revenue above R$1 million in the last twelve months grew from 110 in 1Q22 to 180 in 1Q23.
Net Profit was R$52.4 million compared to R$29.2 million in 1Q22, a 79.2% increase year over year.
Adjusted EBITDA was R$116.5 million, a 37.9% growth year-over-year, equivalent to an Adjusted EBITDA margin of 19.1%.
Adjusted Net Profit was R$67.2 million, 70% higher than 1Q22, with an Adjusted Net Profit margin of 11.0%.
Cash generated from operating activities was R$116.5 million in 1Q23, compared to a cash consumption of R$47.0 million in 1Q22.
CI&T ended 1Q23 with 6,522 CI&Ters, compared to 6,435 at the end of 1Q22.

Cesar Gon, founder and CEO of CI&T, commented, “I'm glad to kick off this cloudy 2023 with solid results from top to bottom, demonstrating our agility in maintaining a lean structure and adapting to changes in the external market environment.

“At the same time, I believe that we are on the verge of probably the most disruptive moment in the history of computers on Earth. AI is a transformative technology with real-world applications and rapid advancements. And we, at CI&T, are moving thoughtfully fast with our clients, co-creating the future in this new chapter of innovation and endless possibilities.”

Comments on the 1Q23 financial performance

The net revenue was R$610.0 million in 1Q23, an increase of 24.0% compared to 1Q22, or a 24.3% net revenue growth at constant currency. We experienced growth in net revenue across all regions we operate in compared to the same period last year.

The cost of services provided in 1Q23 reached R$407.9 million, 24.0% higher in relation to 1Q22, and the gross profit was R$202.1 million. The Adjusted Gross Profit in 1Q23 was R$213.9 million, an increase of 23.4% compared to 1Q22, and the Adjusted Gross Profit margin was 35.1%, in line with 1Q22.

In 1Q23, selling, general and administrative (SG&A), and other operating expenses were R$116.5 million, 15.8% higher when compared to 1Q22, mainly attributed to an increase in personnel expenses, and higher amortization of intangible assets from the acquired Companies. As a percentage of revenue, SG&A and other expenses decreased to 19.1% in 1Q23 from 20.4% in 1Q22, as planned, since SG&A are mainly fixed expenses.

Depreciation and amortization expenses totaled R$25.1 million in 1Q23, 29.2% higher than in 1Q22, as a result of an increase in the amortization of intangible assets from acquired companies, from R$7.6 million in 1Q22 to R$12.7 million in 1Q23.

In 1Q23, the Adjusted EBITDA was R$116.5 million, 37.9% higher compared to 1Q22. Adjusted EBITDA margin was 19.1% in the quarter, an increase of 1.9 percentage points compared to 1Q22, mainly due to the dilution of SG&A expenses.

In 1Q23, net financial expenses were R$20.0 million, 19.5% higher than 1Q22, mainly driven by a higher debt position, an increase in interest rates, and a negative foreign exchange (FX) variation in the period. In 1Q23, the reported net FX loss was R$2.2 million, while in 1Q22 it was a net FX gain of R$ 1.3 million. In 1Q23, income tax expense was R$11.7 million, a reduction of 23.4% in relation to 1Q22.

The net profit was R$52.4 million in 1Q23, 79.2% higher than in 1Q22. Adjusted Net Profit was R$67.2 million, an increase of 70% over 1Q22. The Adjusted Net Profit margin increased 3 percentage points, from 8.0% in 1Q22 to 11.0% in 1Q23, mainly as a result of a reduction in SG&A expenses as a percentage of revenue and lower income tax expense.

Business Outlook

We expect our net revenue in the second quarter of 2023 to be at least R$570 million compared to net revenue of R$525 million in the second quarter of 2022, a 9% growth on a reported basis.

For the full year of 2023, we are maintaining our net revenue growth in the range of 13% to 17% year-over-year, assuming a constant currency outlook. In addition, we estimate our Adjusted EBITDA margin to be at least 19% for the full year of 2023.

These expectations are forward-looking statements and actual results may differ materially. See “Cautionary Statement on Forward-Looking Statements” below.

Share Repurchase Program

On May 17, 2023, the Board of Directors approved a share repurchase program, pursuant to which CI&T may repurchase up to 1.5 million of its outstanding class A common shares in the next 12 months. The program was approved taking into consideration the Company's commitments to deliver shares under its stock-based compensation plan and M&A transactions.

Conference Call Information

Cesar Gon, Bruno Guicardi, Stanley Rodrigues, and Eduardo Galvão will host a video conference call to discuss the 1Q23 financial and operating results on May 19, at 8:00 a.m. Eastern Time / 9:00 a.m. BRT. The earnings call can be accessed at the Company’s Investor Relations website at https://investors.ciandt.com or at the following link: https://youtube.com/live/u-QkX4MFGjA?feature=share

About CI&T

CI&T (NYSE:CINT) is a global digital specialist, a partner in AI powered digital transformation and efficiency for 100+ large enterprises and fast growth clients. As digital natives, CI&T brings a 28-year track record of accelerating business impact through complete and scalable digital solutions. With a global presence in nine countries with a nearshore delivery model, CI&T provides strategy, data science, design, and engineering, unlocking top-line growth, improving customer experience and driving operational efficiency. Recognized by Forrester as a Leader in Modern Application Development Services, CI&T is the Employer of Choice for more than 6,500 professionals.

Basis of accounting and functional currency

CI&T maintains its books and records in Brazilian reais, the presentation currency for its unaudited condensed consolidated interim financial statements, and the functional currency of our operations in Brazil. CI&T prepares its unaudited condensed consolidated interim financial statements in accordance with IFRS, as issued by the IASB, and International Financial Reporting Standard No 34—Interim Financial Reporting (“IAS 34”).

Non-IFRS Financial Measures

We regularly monitor certain financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. These non-IFRS financial measures include Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Profit, Adjusted Net Profit Margin, Net Revenue at Constant Currency, and Net Revenue Growth at Constant Currency, and should be considered in addition to results prepared in accordance with IFRS, but not as substitutes for IFRS results. In addition, our calculation of these non-IFRS financial measures may differ from those used by other companies, and therefore comparability may be limited. These non-IFRS financial measures are provided as additional information to enhance investors’ overall understanding of our operations’ historical and current financial performance.

CI&T is not providing a quantitative reconciliation of forward-looking Non-IFRS Net Revenue Growth at Constant Currency and Adjusted EBITDA to the most directly comparable IFRS measure because it is unable to reasonably predict the ultimate outcome of certain significant items without unreasonable efforts. These items include but are not limited to, stock-based compensation expenses, acquisition-related expenses, the tax effect of non-IFRS adjustments, foreign currency exchange (gains)/losses, and other items. These items are uncertain, depend on various factors, and could have a material impact on IFRS-reported results for the guidance period.

We calculate Net Revenue at Constant Currency and Net Revenue Growth at Constant Currency by translating Net Revenue from entities reporting in foreign currencies into Brazilian reais using the comparable foreign currency exchange average rates from the prior period to show changes in our revenue without giving effect to period-to-period currency fluctuations. In calculating Adjusted Gross Profit, we exclude cost components unrelated to the direct management of our services. For the periods herein, the adjustments applied were: (i) depreciation and amortization related to costs of services provided; and (ii) stock-based compensation expenses.

In calculating Adjusted EBITDA, we exclude components unrelated to the direct management of our services. For the periods herein, the adjustments were: (i) stock-based compensation expenses; (ii) government grants related to tax reimbursement in the Chinese subsidiary; and (iii) acquisition-related expenses, including present value adjustment on accounts payable for business combination, consulting expenses, and retention packages.

In calculating Adjusted Net Profit, we exclude components unrelated to the direct management of our services. For the periods herein, the adjustments applied were acquisition-related expenses, including amortization of intangible assets from acquired companies, present value adjustment on accounts payable for business combination, consulting expenses, and retention packages.

Cautionary Statement on Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under “Business outlook,” including expectations relating to revenues and other financial or business metrics; statements regarding relationships with clients; and any other statements of expectation or belief. The words “believe,” “will,” “may,” “may have,” “would,” “estimate,” “continues,” “anticipates,” “intends,” “plans,” “expects,” “budget,” “scheduled,” “forecasts” and similar words are intended to identify estimates and forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. These statements are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: the current and future impact of the COVID-19 pandemic, the ongoing war in Ukraine and economic sanctions imposed by Western economies over Russia on our business and industry; the effects of competition on our business; uncertainty regarding the demand for and market utilization of our services; the ability to maintain or acquire new client relationships; general business and economic conditions; our ability to successfully integrate the recent-acquired companies; and our ability to successfully execute our growth strategy and strategic plans. Additional information concerning these and other risks and uncertainties are contained in the “Risk Factors” section of CI&T's annual report on Form 20-F. Additional information will be made available in our annual reports on Form 20-F, and other filings and reports that CI&T may file from time to time with the SEC. Except as required by law, CI&T assumes no obligation and does not intend to update these forward-looking statements or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Unaudited condensed consolidated statement of profit or loss

(In thousands of Brazilian Reais)


	March 31,		March 31,
	2023		2022

Net Revenue	609,991		491,872
Costs of services provided	(407,861	)	(328,992	)
Gross Profit	202,130		162,880

Selling expenses	(45,554	)	(35,129	)
General and administrative expenses	(71,222	)	(64,921	)
Impairment loss on trade receivables and contract assets	(1,605	)	(1,066	)
Other income (expenses) net	324		(515	)
Operating expenses net	(118,057	)	(101,631	)

Operating profit before financial income and tax	84,073		61,249

Finance income	20,664		69,582
Finance cost	(40,632	)	(86,294	)
Net finance costs	(19,968	)	(16,712	)

Profit before Income tax	64,105		44,537

Current	(14,780	)	(5,408	)
Deferred	3,057		(9,906	)
Total Income tax expense	(11,723	)	(15,314	)

Net profit for the period	52,382		29,223

Earnings per share
Earnings per share – basic (in R$)	0.39		0.22
Earnings per share – diluted (in R$)	0.38		0.22

Unaudited condensed consolidated statements of financial position


(In thousands of Brazilian Reais)


Assets	March 31, 2023	December 31, 2022	Liabilities and equity	March 31, 2023		December 31, 2022

Cash and cash equivalents	251,550	185,727	Suppliers and other payables	21,542		33,376
Financial Investments	93,884	96,299	Loans and borrowings	233,583		231,296
Trade receivables	445,455	501,671	Lease liabilities	19,922		21,539
Contract assets	232,459	217,250	Salaries and welfare charges	251,801		260,156
Recoverable taxes	15,051	7,619	Accounts payable for business combination	72,005		71,650
Tax assets	1,256	2,959	Derivatives - hedge accounting	40,052		35,169
Derivatives - hedge accounting	30,698	19,637	Derivatives	450		4,109
Derivatives	9,240	11,194	Tax liabilities	8,246		3,890
Other assets	31,856	38,269	Other taxes payable	13,040		14,382
Total current assets	1,111,449	1,080,625	Contract liability	20,491		32,136
			Other liabilities	50,745		47,501
Recoverable taxes	3,644	3,624	Total current liabilities	731,877		755,204
Deferred tax assets	37,848	35,138
Judicial deposits	9,710	9,819	Loans and borrowings	714,741		742,935
Restricted cash - Escrow account and indemnity asset	30,459	31,552	Lease liabilities	37,036		41,269
Other assets	3,637	3,654	Provisions	12,074		12,347
Property, plant and equipment	52,032	55,266	Accounts payable for business combination	132,681		133,299
Intangible assets and goodwill	1,719,226	1,750,898	Other liabilities	2,929		3,530
Right-of-use assets	50,402	56,187	Total non-current liabilities	899,461		933,380
Total non-current assets	1,906,958	1,946,138
			Equity
			Share capital	37		37
			Share premium	946,173		946,173
			Capital reserves	209,093		203,218
			Profit reserves	304,255		251,873
			Other comprehensive income	(72,489	)	(63,122	)
			Total equity	1,387,069		1,338,179

Total assets	3,018,407	3,026,763	Total equity and liabilities	3,018,407		3,026,763

Unaudited condensed consolidated statement of cash flows


(In thousands of Brazilian Reais)


	March 31, 2023		March 31, 2022

Cash flows from operating activities
Net profit for the period	52,382		29,223
*Adjustments for:*
Depreciation and amortization	25,053		19,390
Gain/loss on the sale of property, plant and equipment and intangible assets	(95	)	1,926
Interest, monetary variation and exchange rate changes	22,085		4,488
Interest and exchange variation on accounts payable for business combinations	1,445		(11,628	)
Exchange variation on escrow account related to Somo acquisition	67		3,123
Interest on lease	1,179		2,146
Unrealized gain on financial instruments	(4,544	)	(4,487	)
Income tax expenses	11,723		15,314
Reversal of impairment losses on trade receivables	(89	)	(1,194	)
Impairment losses on contract assets	1,694		1,064
Provision for labor risks	(273	)	571
Stock-based plan	5,393		1,239
Income on financial investments	(193	)	-
Present value adjustment - accounts payable for business combination	1,589		-
Others	41		-
Variation in operating assets and liabilities
Trade receivables	49,460		21,293
Contract assets	(18,900	)	(78,979	)
Recoverable taxes	245		(3,330	)
Tax assets	(11,281	)	(15,242	)
Judicial deposits	110		(3,022	)
Suppliers and other payables	(11,672	)	(31,279	)
Salaries and welfare charges	(7,628	)	15,553
Tax liabilities	-		(901	)
Other taxes payable	633		(682	)
Contract liabilities	(12,657	)	(2,021	)
Other receivables and payables, net	10,795		(9,529	)
Cash generated from (used in) operating activities	116,562		(46,964	)
Income tax paid	(6,808	)	(4,818	)
Interest paid on loans and borrowings	(15,534	)	(19,458	)
Interest paid on lease	(1,148	)	(1,479	)
Net cash from (used in) operating activities	93,072		(72,719	)
Cash flows from investment activities:
Acquisition of property, plant and equipment and intangible assets	(4,247	)	(8,295	)
Acquisition of subsidiary net of cash acquired - Somo	-		(265,137	)
Cash outflow on hedge accounting settlement	-		16,134
Redemption of financial investments	1,474		350,128
Net cash from (used in) investment activities	(2,773	)	92,830
Cash flows from financing activities:
Exercised stock options	478		5,128
Payment of lease liabilities	(5,919	)	(6,084	)
Settlement of derivatives	2,839		(381	)
Payment of loans and borrowings	(19,432	)	(38,506	)
Payment of investment obligations - Somo	(1,235	)	-
Net cash used in financing activities	(23,269	)	(39,843	)
Net increase/(decrease) in cash and cash equivalents	67,030		(19,732	)
Cash and cash equivalents as of January 1st	185,727		135,727
Exchange variation effect on cash and cash equivalents	(1,207	)	15,832
Cash and cash equivalents as of March 31	251,550		131,827

Reconciliation of Non-IFRS financial measures to comparable IFRS financial measures


Reconciliation of revenue growth as reported on an IFRS basis to revenue growth on a constant currency basis:


Net Revenue (in BRL thousand)	1Q23	1Q22	Var. 1Q23 x 1Q22
Net Revenue	609,991	491,872	24.0	%
Net Revenue at Constant Currency	621,193	499,617	24.3	%

As of this quarter, we present an enhanced classification of our revenue by industry verticals, encompassing more comprehensive and representative industry categories that better align with our evolving business trends.

Net Revenue by industry (in BRL thousand)	1Q23	1Q22	Var. 1Q23 x 1Q22
Financial Services	174,783	156,326	11.8	%
Consumer goods	116,156	104,369	11.3	%
Technology and telecommunications	125,060	68,056	83.8	%
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	609,992	491,872	24.0	%

Net Revenue by geography (in BRL thousand)	1Q23	1Q22	Var. 1Q23 x 1Q22
North America	263,386	203,940	29.1	%
Europe	73,726	37,589	96.1	%
LATAM (Latin America)	240,616	234,706	2.5	%
APJ (Asia, Pacific and Japan)	32,263	15,637	106.3	%
Total	609,991	491,872	24.0	%

Reconciliation of various income statement amounts from IFRS to non-IFRS measures for the three months ended March 31, 2023 and 2022:

Gross Profit (in BRL thousand)	1Q23		1Q22		Var. 1Q23 x 1Q22
Net Revenue	609,991		491,872		24.0	%
Cost of Services	(407,861	)	(328,992	)	24.0	%
Gross Profit	202,130		162,880		24.1	%
Adjustments
Depreciation and amortization (cost of services provided)	9,410		9,318		1.0	%
Stock-based compensation	2,376		1,182		101.0	%
Adjusted Gross Profit	213,916		173,380		23.4	%
Adjusted Gross Profit Margin	35.1	%	35.2	%	-0.2p.p

Adjusted EBITDA (in BRL thousand)	1Q23		1Q22		Var. 1Q23 x 1Q22
Net profit for the period	52,382		29,223		79.2	%
Adjustments
Net financial cost	19,968		16,712		19.5	%
Income tax expense	11,723		15,314		-23.4	%
Depreciation and amortization	25,053		19,390		29.2	%
Stock-based compensation	5,393		1,239		335.3	%
Government grants	(140	)	(58	)	140.5	%
Acquisition-related expenses ⁽¹⁾	2,124		2,695		-21.2	%
Adjusted EBITDA	116,504		84,515		37.9	%
Adjusted EBITDA Margin	19.1	%	17.2	%	1.9p.p

(1)

Includes present value adjustment on accounts payable for business combination, consulting expenses and retention packages.

Net Profit (in BRL thousand)	1Q23		1Q22		Var. 1Q23 x 1Q22
Net profit for the period	52,382		29,223		79.2	%
Adjustments
Acquisition-related expenses ⁽¹⁾	14,836		10,323		43.7	%
Adjusted Net Profit ⁽²⁾	67,218		39,546		70.0	%
Adjusted Net Profit Margin⁽²⁾	11.0	%	8.0	%	3p.p

	(1)	Includes amortization of intangible assets from acquired companies, present value adjustment on accounts payable for business combination, consulting expenses and retention packages.
	(2)	Adjustments' amounts are gross of tax. Tax effects on non-IFRS adjustments totaled (R$67) in 1Q23 and (R$24) in 1Q22.