CI&T Inc

Since the 1990s, companies have been trying to digitally transform their operations and how they interact with customers. The rapid expansion of technology, driven by the ubiquity of mobile applications and other connected devices, has increased the prevalence of connected consumers. Empowered by these technologies, consumers are more sophisticated than ever and are increasingly demanding seamless digital experiences. CINT is a global digital services specialist and has helped companies adapt to these new demands since 1995, quickly gaining a reputation for providing digital solutions that delivered on both speed and quality. From its humble beginnings, CINT now provides strategy, design, and software engineering services to enable digital transformation for the world's leading brands.

cint is a technology service company with a solid track record of continuous growth best-in-class profitability and a highly recurring revenue model with a strong net revenue retention rate cint also operates with a very healthy employee retention figure In the market of digital services, large enterprises and new fast-growing digital firms are facing challenges with digital transformation. The former struggle to innovate and quickly transform, while the latter struggle to scale their operations. To help these companies, CI&T combines digital strategy with customer-centric design and top-of-the-line software engineering to offer end-to-end solutions from the business opportunity to the hands of the consumers. CINT combines these competences under one set of principles, practices, and methodologies called Lean Digital, a methodology unique to CINT that is a combination of the disruption of digital and the discipline and leadership frame of Mind of Lean. CINT generates business impact for clients across several geographies and industries, such as financial services, food and beverage, and pharmaceuticals, always focused on building strong client relationships that expand over time. Metaphorically speaking, giving giants nimble feet.

Hello, and good morning, everyone. Welcome to CINT's second quarter of 2022 earnings call. I'm Eduardo Galvão, Head of Investor Relations at CINT, and it's a pleasure to be here again to talk about our results. With me on today's calls are Cesar Ghosn, Founder and CEO, Bruno Guicardi, Co-Founder and President for North America in Europe, and Stanley Rodrigues, our CFO. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After that, there will be a question and answer session for analysts and investors only. If you'd like to submit a question, please send it via email to investors at cint.com. The Q2 presentation is available on the company's investor relations website at investors.cint.com. The replay will be available shortly after the event is concluded. Some of the matters we'll discuss on this call, including our expected business outlook, our forward-looking statements, and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors described in our earnings release and discussed in this risk factors section of our annual report on Form 20F and other reports we may file from time to time with the SEC. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place undue reliance on those forward-looking statements because they are valid only as of the date when made. During this presentation, we will comment on certain non-IFRS financial measures to evaluate our business. Please refer to the reconciliation tables on non-IFRS measures in the appendix for more details. Our agenda for today includes an update on recent events, followed by some of our successful business cases and a few highlights. We'll then talk about our people and discuss our quarterly financial results. At this time, I'm pleased to invite Cesar Ghosn to begin our presentation. Cesar, please.

Thanks Eduardo. Good day everyone and thank you for joining us today. During those last months, I could finally physically attend investors' conferences and meetings and it was good to meet many of you in person. We are excited to report a solid second quarter, demonstrating the resilience and consistency of our engagements with our long-tailored clients. We also continue to be disciplined in onboarding new clients every quarter to guarantee sustainable long-term growth. The demand for our services remains strong in all geographies and industry verticals we operate, and we continue to expand and diversify our inspiring network of tech talent worldwide. And I'm glad to announce another move in our programmatic M&A strategy. This week, we announced the acquisition of Transpire in Australia, a founder-led, award-winning technology consultancy company to accelerate our growth in the Asia-Pacific region. We are excited about the arrival of Transpire to the CI&T family, and with all future possibilities, it will spark. Since 2009, Transpire has been the trusted technology partner of some of Australia's most innovative organizations, including Vodafone, Virgin Australia, among several large companies. Headquartered in Melbourne, with team members across Australia, Transpire delivers digital experience across several verticals with a solid design-led, mobile-first, cloud-native approach. As part of this strategic acquisition, Transpire will add around 100 digital specialists to CINT, further expanding CINT's operations in the region. Transpire recorded AU$15.5 million in net revenue in its fiscal year, which ended in June 2022. The purchase price for this acquisition is AU$23.4 million. Previously, in late May, we announced the acquisition of Box1824, a future-focused strategic consulting firm headquartered in São Paulo with around 40 specialized senior strategy professionals, helping Brazilian and global companies to design and implement their future. With their ability of detecting, decoding and directing consumer behavior changes, the 3D methodology, they have been able to shape several industries, portraying an impressive client list, including names like Itaú Bank, Vivo Telefónica, Nike, Google, Disney and Spotify. Box 1824 will remain an independent business unit, part of the CINT family, to foster their successful business model and enhance CINT's end-to-end digital capabilities. Now let me comment on the second quarter financial highlights. We are glad to present another set of high growth in revenue with solid profitability metrics. Our net revenue in the second quarter of 2022 grew 67% year-over-year or 73% in constant currency, eliminating FX fluctuation. The main factors contributing to our higher growth pace continue to be the expansion of our engagements with existing clients, the addition of 17 new clients this second quarter with annual revenue above 1 million reais in the last 12 months, and our programmatic M&A strategy. Our adjusted EBITDA margin was 19.1%, 160 basis points higher than our previous quarter. Finally, we continued to expand our global talent network, We ended the quarter with more than 6.7 thousand CI interiors, a net addition of 2.7 thousand employees in the last 12 months. That's a 68% growth in our headcount in line with our top line growth. This is our 24th quarter of consecutive net revenue growth, endorsing a business model that allows the rare combination of long-term high growth rates, solid profitability, and cash generation. Once again, I want to express my gratitude to all CITers across the globe who have been dedicated to making this happen. Stanley will deep dive into our financial results shortly. Lastly, we are very proud of the business impact through digital initiatives we generate for an ever-increasing number of large and fast-growing clients in several geographies and industries. Regarding our revenue in the first half of 2022, 84% is from brick and mortar companies and 16% from digital natives. And to make this more concrete, let's take a look at some powerful stories with our clients, our data powerhouse, and some additional highlights. Don't end up on an empty shelf.

Kraft Heinz sales tech ecosystem, a system made to transform data insights in impactful business actions. Kraft Heinz Sales Tech Ecosystem is a digital and automated business management system that provides the sales team with the right data at the right time with a single source of truth. It will increase revenue and reduce costs for all business units in the international zone, consolidating data and providing real-time information while monitoring all the sales cycle for better informed decisions faster than ever before. This allows Kraft Heinz to increase business knowledge and establish a long-term data-driven partnership with customers, being present in every store with the right product. We're going to initially create an MVP, which is under development in France. Since this is an international agile project, the second workstream has already started in Brazil, delivering the sales tech ecosystem product with the same tools and other customized features for the Brazilian market. The plans are to continue the rollout into other key territories in the Kraft Heinz International Zone from September 2022. Expected Outcomes A more efficient and productive team, spending less time obtaining data and more time generating value. Forecast improvements that will generate more profitability and reduce costs. better internal communication and alignment, increased customer satisfaction. Automate the processes and use performance reviews to accelerate decision-making. Let's make life delicious.

One Million Opportunities was launched in October 2020 by UNICEF Brazil, offering quality education, connectivity, skills development, professional training, apprenticeship, internship, employment, and civic participation opportunities for vulnerable young people between 14 and 24 years old. With over 48 million, Brazil has the largest generation of young people between the ages of 10 and 24 in its history. However, 31% between 18 and 24 are unemployed, and 12,300 million between 15 and 29 years old are not in education, employment, or training. To design and develop an effective solution, we partnered with One Million Opportunities in its new platform. This work started by listening to different stakeholders, including the youth population as end users, and the public and private sectors. Features similar to social networks and a big bet on interaction were the assumption to engage people. To be fully inclusive, we learned about the needs that a vulnerable group faces, such as the need for offline resources due to unstable access to a good internet connection, and the soft skills that employers most value. Through public-private youth partnership, the OneMeal initiative has been scaling rapidly since its launch and has created over 158,000 opportunities together with an ecosystem of partners from the private sector.

Imagine a drugstore. Now, imagine health. Vox 1824, part of the CINT family, supported RD, the biggest drugstore chain in Latin America, to expand its business vision in a disruptive way. The company is shifting from a drug retailer to a provider of healthcare services. Together, Vox 1824 and RD define the company's new north, where a healthcare company also takes care of the planet and its people. With Box 1824, RD materializes a future where sustainability is part of the core business, not something attached to it. The companies are also able to build the future in conjunction with behavioral trends, more health, more concern for people, and more care for the environment, and technological trends, such as digitalizing health services to increase accessibility and reduce waste. Alongside Box 1824, RD is building its own future. And the future of the drugstores

Nestlé has 100 years of history in Brazil and is present in nearly 100% of homes in the country. Such a traditional track record doesn't stop the company from reinventing its business strategy, using data to foster sales. Since 2019, Nestlé Brazil has counted on CINT to co-develop data strategies. Together we created DaDataLab, an internal operation of data, engineering science, and governance that connects Nestlé data from multiple sources. New features, like the Product Recommender, are made possible by this connection. The Product Recommender feature uses artificial intelligence and machine learning to get raw data and convert it into valuable insights. Nestle has better products to offer to retailers with data, enabling cross-selling. Sales reps provide products at the right time, creating a space for business growth for retailers, Nestle, and its commissions. The feature alone increased sales by 6% over the first six months. Today, almost 100,000 retailers have access to this technology. The Data and Analytics Powerhouse was created to enhance business strategy and people capabilities to accelerate the maturity level in data. The Data Journey, an owned offer that engages our clients in a new approach to data, governance, and strategy, was developed by the Powerhouse. Globally dispersed, the Powerhouse is composed of a community of data specialists, digital strategists, and researchers widely committed to the value of data for business, people, and society.

Hello, everyone. I am Gabriel Morostegam, head of data at CIT and a member of Data Analytics Powerhouse leadership team. We built the Data Analytics Powerhouse on the principle of thinking globally and acting locally with goal of rapidly expanding our capabilities and results. Since the beginning, we have been experimenting with the power of the crowd in communities, using their contributions and multidisciplinarity to create a space for innovation. Today, we have over 600 people working in small groups around the world to share knowledge, create accelerators, research solutions, and prepare for the future. Our data journey offer, which aims to help our clients solve their data capabilities gap, cope with cultural challenges and accelerate their data maturity, is proving successful. This secret sauce is advanced with data platforms, hybrid intelligence amplifying the power of human analysis through AI solutions and data strategies driven by business impact. Recently, Our R&D initiatives, called Cognitive Lab, in partnership with the University of Campinas, achieved the best paper award at the 24th International Conference on Enterprise Information Systems. In this way, we are accelerating our capabilities, impacting the market, and generating business routes for our clients. This is how we help make their tomorrow.

Pride Month raised understanding and belonging in CINT globally. It was an intense month, which is routinely the apex of a set of diversity and inclusion practices that find a bigger stage in June. Through internal dialogue, support for LGBTQIAP plus parades, and an addition of tech voices, an event provided by us that aims at deepening talks from the perspective of vulnerable groups, we keep creating a safe space for diverse talents to grow. As a material result, we were named one of the 38 best companies for LGBTQIAP plus professionals to work for, by Mize Diversidade Institute, LGBTI Plus Business and Rights Forum, and the Human Rights Campaign Foundation.

We are super excited to have Box1824 as part of the CINT family. With this acquisition, we are pairing together two very solid reputations of envisioning and accelerating the future in the digital space. We believe the corporate world faces two major disruption fronts, technological possibilities and behavioral changes. CINT has a very well-known reputation in this first part. With BoxNow, we are profoundly strengthening our capabilities to create value for our clients.

Hi, I'm Paula Englert. I'm CEO at Box1824. We are a strategic consulting firm that connects brands and people to the future. From almost two decades now, we have been bridging this gap between the future and the present, helping global companies to better structure their business and their innovation process. Joining the CINT family enables both to offer our clients a complete journey from envisioning the future to transforming these visions in business opportunities.

The Polar Route is a project by Beto Pandiani that aims to discuss climate change and its socio-environmental impacts by crossing the Arctic from Alaska to Greenland. Beto is a world-renowned sailor and speaker and, in this eighth crossing, will resume the partnership with Igor Belli, who was present in his other two crossings, the Pacific and Atlantic Oceans. CINT supports this mission across the ice to evidence climate change and to instigate people about the need to think ahead. Even if it feels like we're all trapped in a sea of uncertainty, unlikely things can happen when entrepreneurship, innovation, and technology are combined. Like crossing the Arctic to raise awareness of the rapid melting of the Arctic. All of this on a tiny catamaran.

The digital landscape is constantly evolving, and the way customers engage with brands is changing. Behavioral science, while at the forefront of communications in other sectors, remains relatively untapped when considering connected digital experiences. As part of London Tech Week, the leading event in Europe's tech capital, SOMO, part of the CINT family, led the conversation with our own event.

I think behavioural science is going to be fundamental in shaping the future of digital products. I think it without doubt is the biggest challenge that we've got to really understand how we motivate and how we engage and how we engender good positive habits with customers.

Discussing how behavioral science can inform and aid the creation of digital experiences, inspire brand loyalty, and support brands to create success. Moderated by our CSO, Ross Light, and a panel of experts, we discuss the key themes that will be vital in the future development of digital products. Trust, friction, ethics, and ultimately, the science of understanding people.

A lot of the challenges we have require a deeper understanding of people. It's just as simple as that. You know, if we're addressing health and finance and sustainability and all of these kinds of things, we're not going to do that with an inadequate understanding of people in a lot of times.

Understanding customer behaviors and motivations enables brands to gain the competitive advantage. CINT is an expert in this area, using behavioral science to create impact for businesses, in turn boosting revenue.

leading global market research company forester research has positioned cint as a leader in the forester wave modern application development services quarter 3 2022 the wave is a well-known guide for buyers considering their purchasing options in a technology marketplace forester analyzed and evaluated significant service providers across criteria related to their current offerings strategies and market presence CI&T received the highest scores in over half of the evaluation categories, including Organization Structures, Talent Management, Agile Development, Product Development, Market Approach, Partner Ecosystems, and DevOps SRE and Automation. According to Diego Lo Giudice, vice president and principal analyst at Forrester Research, CINT is a strong fit for enterprises in industries where digital plays a critical role and those that aspire to succeed with building a digital presence through modern application services. The recognition is a reflection of CI&T's dedication of empowering organizations to maintain competitive innovation in their digital initiatives by enabling the creation of new business capabilities and operational models in a fast-paced market.

Now, I invite Bruno to talk about our global talent strategy.

Thank you, Cesar. Good morning, everyone. It's nice to be here once again. Our team keeps expanding globally, and we ended the second quarter of 2022 with more than 6,700 CITers, which represents a net addition of 2,700 employees in the last 12 months, or a 68% growth year over year. And we're proud to be recognized as one of the best companies to promote diversity, equality, and inclusion within our teams by Mais Diversidade Institut, LGBTQI+, Business and Rights Forum, and the Human Rights Campaign Foundation. As we continue to grow and expand, we have a great opportunity to tap into the potential presented by the megatrends of remote work and work from anywhere. We're leveraging the processes and practices we have honed for decades, working in a distributed way to further integrate remote work into our operations and diversify even more our talent pool. We're gradually penetrating new labor markets and are really excited by these initial results. At the same time, we're pioneering innovative ways of team interaction in new forms of infrastructure to continue improving employee engagement in this new environment. Also, acquisitions have been helping in that diversification as well. Throughout this year, the acquisition of SOMO has strengthened our footprint in Europe and got us a new delivery center in Colombia. Now, with the addition of Transpire, we will enhance our position in Australia and the Asia-Pacific region. Now, I invite Stanley to dive into our quarterly financial results.

thank you bruno and good morning everyone i'm glad to kick off our financial section with solid numbers in our top line our net revenue in the second quarter 2022 was 525 million reais a 66 percent growth year over year the acquisitions concluded in 2022 contributed to 13 percentage points of revenue growth in the quarter Around 50% of our revenue comes from US dollar and British pound denominated revenues. And as the Brazilian real appreciated against these currencies during the quarter, when eliminating the FX variation, our net revenue in constant currency would have been 550 million reais a 73% increase compared to the second quarter of last year. We continue to diversify our client base with the addition of 17 new clients in the second quarter. This year we already added 33 new clients to our portfolio that will foster our sustainable growth over the coming years. As Cesar mentioned, our strong revenue growth derives from our expansion within existing clients, the addition of new clients every quarter, and our programmatic M&A strategy. Analyzing our revenue breakdown, you can see in the left-hand chart that we are expanding our global presence. North America continues to be the largest growing market organically for CINT, and we strengthened our presence in Europe with the acquisition of SOMO early this year. Our net revenue by industry verticals remains diversified. It's worth noting that around 84% of our revenue comes from brick and mortar companies and only 16% from startups and digital native companies. In terms of revenue by industry verticals, financial services grew 50% year-over-year, food and beverage increased 17%, and TMT grew 120% in the first half 2022 compared to the same period of last year. Finally, we reduced our top 1 client share from 24% in first half 2021 to 16% in first half 2022. And our top 10 client share diminished from 73% in first half 2021 to 52% in first half 2022. We expect this trend to continue as we onboard new logos and integrate the recent acquisitions. Now talking about the number of multi-million accounts. We already mentioned the addition of 33 new clients in the first half 2022, pretty much the total amount of new clients added in the full year of 2021. It's worth mentioning that we also increased 5 accounts with more than 20 million reais in annual revenues, totally 21 accounts. The number of clients with revenue above R$ 5 million and R$ 10 million also grew significantly, as you can see in this chart. This is a strongly recurrent business model based on a land and expand strategy, as shown in this cohort. Typically, most of the growth in the upcoming years happens by expanding within current clients, generating an average net revenue retention rate of 120%. But we also ensure the entry of new logos every year, which will mature in two or three years and guarantee future growth. The result is an year-over-year increase in the client wallet share and an increasing number of multi-million accounts. Moving down the P&L, we ended the quarter with R$ 100.4 million in adjusted EBITDA, a 36% growth year-over-year, an EBITDA margin of 19.1%. The cost of services provided grew 66% compared to the second quarter 21, aligned with the increase in revenue and headcount. Thus, the decline in EBITDA margin in a quarter was mainly due to FX headwinds, M&A, as recently acquired companies have lower margins, and higher SG&A expenses. Sales, general and administrative expenses increased mainly as a result of three factors. The expansion of our hiring, attracting and training teams aligned with our revenue and headcount growth. Acquisition-related expenses, including the amortization of intangible assets from acquired companies and the strengthening of our back-office operation in connection with the IPO. The IPO-related expenses are mainly fixed and should be diluted over time as we expand our revenue base. It's worth mentioning that adjusted EBITDA grew 17% compared to the first quarter 22 and margin improved 160 basis points sequentially due to the higher utilization rate and the price increases that happens throughout the year, as planned and as we mentioned in the previous quarter. In the second quarter 2022, adjusted net profit was 52.3 million, 16% higher than the second quarter 2021, equivalent to an adjusted net profit margin of 10%. The reduction in the adjusted net profit margin was mainly due to the higher SG&A and the financial expenses. Net financial expenses were R$ 17.5 million in Q2 2022 compared to R$ 2 million in Q2 2021, mainly due to the debt raised in July 2021 to finance the DEXTRA acquisition in the amount of R$ 650 million combined with higher interest rates in Q2 2022. In May, we paid down R$ 100 million in debt with cash proceeds, reducing our gross debt and replaced part of our Brazilian reais denominated debt that carries higher interest rates for dollar denominated debt to reduce the overall cost of debt. Therefore, we expect to see a slight decline in our financial expenses for the coming quarters. We ended the quarter with 358 million in cash, providing us a pretty good liquidity level. I will now pass it back to Cesar to comment on our guidance for the remaining of the year. Cesar, please.

Thank you, Stanley. We remain very confident about the opportunities that lie ahead. Based on current market conditions, we expect our net revenue in the third quarter of 2022 to be at least 540 million reais, a 46% growth year-over-year in a constant currency basis. For the full year of 2022, we are updating our outlook mainly to reflect FX variation in the period. So we expect a net revenue growth of at least 55% year-over-year on a constant currency basis and revenue growth on a report basis of at least 49%, which includes a negative FX translation impact of approximately 6% of points. In addition, we estimate our adjusted EBITDA margin to be at least 19% for the full year of 2022, assuming an average exchange rate of 5.1 Brazilian reais to the US dollar for the full year. That's what we have for now. Thank you all for your trust in CINT and for attending our call today. We now conclude our presentation and may move to the Q&A session.

We'll now begin the question and answer session. I'll announce each participant's name. Once you hear it, please unmute your line and ask your question. Then, when you're done, please mute your line. The first question comes from Ashwin from Citi. Ashwin, please.

Thank you, Eduardo, and good to see you all. My question is with regards to FX, since I don't think we had the FX impact disclosure for past periods. But could you walk through how FX volatility affects your EBITDA is my first question. And then the second part of it is... You're mentioning that the updated outlook is mainly to reflect FX. Are there also other factors with regards to, you know, cyclical concerns from clients or slower ramps, things like that that we are beginning to hear perhaps from other companies?

Thank you. Stanley, let me start with the second part and then I hand it to you to the first one. Great to see you, Ashley. I think regarding the The new outlook, I think, as you mentioned, the main factor is we adjust for mostly effects, 6% of points on this variation. But we also have, as you saw, we are still onboarding new clients in a very solid pace. Basically, in two quarters, we did the same as the full last year. But the ramp up for the digital native cohort is slower. So that represents probably the last, the majority of the 4% of points. And regarding past FX impact, I will hand it to Stanley, please.

Hi, Ashwin. Thank you. Thank you for the question. In a mathematical way to see how FX affects our EBITDA, you can consider that for each 40 cents in the FX rate, you can foresee a 1% impact or above or down. That's the most programmatic. And this comes from the mix of currencies that we have in top line and in cost. As you may know, 70% of our costs, they are based in Brazilian reais, while around 50% of our revenues comes from hard currencies. So we have a fax leverage. This leverage is affected by this 40 cents per one percentage point ratio, let's say.

Okay, understood. And then the other question was, I noticed that you're now adjusting out amortization of acquired intangibles. Is that indicative of a very strong M&A pipeline that you feel the need to do that. You've obviously done many token type acquisitions since the IPO itself.

yeah about the adjustment itself we we felt that we we were we would have to be in line with what the industry is doing um since the amortization they have a quite significant impact in our sdna so it would be better for everybody to to understand better understand and faster to understand our our operation And that's the main reason for the adjust. With regard to the pipeline, we remain active. As we've been mentioning, we have a programmatic approach to M&A, and we have this as an important tool to speed up our organic growth as we incorporate very focused and programmatic acquisitions.

Thank you.

Thank you, Ashwin. Our next question comes from Diego from Goldman Sachs. Diego, please.

Yes, good morning, everyone. So my first question is regarding M&A. You made three acquisitions since the IPO, two of them seems highly complementary in a geographical standpoint, while Box 1824 looks to bring more, let's say, intelligence, specifically for clients in Brazil and Latin. That's my understanding. So I have a couple of questions in here. The first is, how is your current pipeline of M&A at this point? And what should we expect in the next, let's say, 12 months? And also, how do you expect to fund these transactions and future transactions, right? uh specifically you know given uh the market uncertainties you know either like on the equity side on the debt side so i just want to understand a little bit of your deals in there and lastly uh if you can just help us to understand you know the cross-sell opportunity is specifically for uh solo and transpired uh that's the first question thank you

sure thank you diego great to see you again i think i think uh we have been following this uh in a very consistent way our programmatic approach for m a looking for expanding our geography reach and also virtual expertise and this last move with transpire is in the same pack We now have a good platform for expanding in Australia, one of the largest and good market for digital services, the same size of Brazil. So it's an amazing opportunity for speed up our growth, not only in Australia, but in the Asia-Pacific region. Regarding, yeah, I think you are right, we continue to foresee and see a very strong pipeline for M&A. Now, of course, as Stanley mentioned, M&A for us is a way to speed up our organic growth. So now we are focused on, especially in our pipeline, you can see a lot of opportunities in the USA and in, I would say, continental Europe, non-UK Europe, where we still have a lot of I would say markets that we are not addressing in Europe. So you should expect to see more moves, especially in these two geographies. And we are always open for opportunity. to strengthen our competence, our skill set, as we did with Box, that I think is an amazing complementary expansion of our strategy set of competence and offering. Regarding funding, I think Stanley could hand that. Please, Stanley.

Okay. Well, thanks Diego for the question. We may take some debt because we have plenty of space to use that. If we cross with any good opportunity that we couldn't miss, but in a very conservative way. Of course, we are looking closer to the market, waiting for the market conditions for any, let's say, any movement in the market additionally to offset any debt that we acquire now. So we in a very conservative, as always, we were observing market and observing the opportunities and considering those tools, let's say.

Understood. Thank you. Thank you both. I guess my second question is more related to the overall business dynamic for your services. Now that we are facing, let's say, a more challenging a macroeconomic environment for a few months. Are you seeing any indication that demand is slowing or that clients are somewhat postponing their projects? Thank you.

Thank you for your question, Diego. I think, as I mentioned, I think for Britain, we're large global companies that continue to invest consistently on digital and technology. What we see, especially in this, I would say, short term, in the one or two quarters ahead, is a slowdown in the digital natives cohort. I think it's related to the scarcity of funding. and of course this macro environment but so it's that's why we we emphasize that 84 of our business is is based on on this brick and mortar uh set of clients and this cohort is is continued to expand in a very consistent way and and yeah I think that's it right your question

Yeah, that's perfect.

Yeah, but I think I would add, Diego, that we still see that digital is really considered not only important, but urgent. Even in these uncertain times, companies are really improve their bets on the agility of digital initiatives, a way to not only increase opportunities, revenue and client engagements, but also a way to gain efficiency in their operations. So that's the amazing like a big part of this industry that is really very resilient to different market and macro conditions.

Makes sense. Thank you. Thanks, Diego. Our next question comes from Tyler Dupont from Bank of America. Tyler, please go ahead.

Good morning. Thank you for taking the question. I want to start specifically on margins. and how we should think about them moving forward. Can you maybe just speak a bit to the strength of your pricing model and perhaps the levers you have at your disposal to either increase pricing or just to manage cost more generally?

Tyler, thank you for the question. Pricing is always depending on the mix of teams, on the technology that we deploy, and we have plenty of space there. As you may know, we are always working with the top line of our clients. And even the market conditions also help us. We are very well positioned in the top tier of value in the value chain for our clients. So we always have opportunities to use new technologies and blend those technologies into our mix and always preserve margins. We also have the freshly new clients entering the portfolio that, again, they play a major role in that mix. So it's always a portfolio management in terms of the pricing with all the existing clients, the growth levers that we have within the clients, and also the new clients coming in.

Perfect. Great. Thank you. Appreciate that. And then also, I know you don't tend to provide numbers rounding attrition and utilization. But maybe if you could just speak more generally to how it's trending versus previous quarters and your like internal expectations and if there's anything specific to call out there.

I think Bruno could handle that. I'm sorry. Come again, Tyler.

The question was with regard to attrition.

Well, attrition is actually right. Attrition continue at very low levels comparatively to the industry. Our overall attrition is around 16%. And another attrition number that we follow even more closely is actually the leadership attrition, which is actually the big bottleneck for growth for us and actually what that's most important in terms of quality of our services and consistency of our services. and that's even lower. It's around 6%, so it's very comfortable levels. And what we see in the industry is I think it continues to be a very hot market, but it's probably the less hot that's been in the last 12 to 18 months, so it's good news for us.

Perfect, Bill. I appreciate the color. Thank you.

We have a question here. Thank you, Tyler. We now have a question here via email from Pune, from JP Morgan. Can you break down components of EBITDA margin deterioration from 20% to 19% guided into FX, SG&A investments and new M&A impact? Are you seeing any adverse impact from macro uncertainty on client spending or have their spending priorities changed at all over the last three months?

Okay, well, I'll start with the first part, and Cesar, you handle the second, please. With regard to the EBITDA breakdown, FX plays a major role. As I mentioned, we have this leverage, reais, dollar. And as you saw, we had an affectation in gross margin with regard to this leverage. But M&A also is relevant as we have increased our expenditures with the activity. And of course, SG&A investments, as we became public, we had to invest in our back-office structure. So we have a consultancy, we have stronger teams, we have a higher DNO, insurance. So the whole package, I would say, starting with FX, that plays a major impact, but in that order.

Just to add here, in terms of those impacts, we have those investments in SG&A, we expect them to be diluted over time. So they're mainly fixed expense when you think about back office operations. So that should contribute to our operating leverage for next years. And M&A impact, I mean, as usually the companies we acquire have lower margins, so it's natural to have an impact on that side, but that's something that we also expect to improve those margins going forward to bring that to C&T level so that overall we can also increase EBITDA margin for the consolidated company.

Thank you. Let me add regarding the client behavior or spending pattern. We see our clients looking for really initiatives that will generate results in, I would say, more short cycles and that resonate a lot with CI&T value proposition of combining strategy, design, engineer in a way that we can really foster results in very short times, typically nine days. I think that's why we see this environment as an amazing opportunity to continue to grow higher than the industry, much higher than they used to. And it's an opportunity to increase our market share. And I think we are their opposition to continue to do so.

Thank you, Saza. We have a follow-up question from Diego from Goldman Sachs. Diego, please. Diego, any follow-up on your side? Maybe you're just, if you're hand-raised. Let me move on here for some questions we got via email. The first one is regarding the integration of the acquired companies. Can you please provide a follow on the status of the integration process of your recent acquisitions?

Sure. We can take this one. Dextra has been, the integration of Dextra has been completed by December last year. So we're considering, you know, business as usual, completely integrated. The business has been reorganized around four roof units, and it's completely seamlessly integrated at this point. SOMO will start integration in this first half of 2022. We expect to be fully integrated in 2023, but integration is going really well. We're collaborating already. uh around some global accounts and and that's part of actually uh the the question diego asked right so what we expect from those uh in terms of cross sale from those acquisitions is actually those global accounts that uh you know transpire or somo have in cint right so we use those new geographies try to support our global clients those geographies and their global accounts to be supported and the geographies that already have presence. So that's a kind of clear opportunity there for cross-sale. That's what we're doing with SOMO and we do a transparent report.

Bruno, let me... take these questions to mention that we see really our platform, our entrepreneur platform, the way CINT is organized around 26 growth units, it's helping a lot, not only in our aggressive organic growth, but also allow us to provide a very strong value proposition for founder-led companies our target companies and also it's it's been an amazing uh uh way to integrate these new companies to cint global platform and leverage uh the synergies and and the market uh capabilities it's it's we we are counting on this entrepreneur organization model to continue to combine an aggressive organic strategy with our programmatic m&a strategy

We have a follow-up question from Ashrin from Citi. Ashrin, go ahead.

Yeah, thank you. The follow-up is on M&A. And you've mentioned, of course, a few times the programmatic approach. Are you backtesting, you know, the results of past M&A? I mean, for example, relative to your initial expectation, how is Dextre doing? How is SOMO doing? If you could comment a little bit on that, is that what gives you confidence to keep doing programmatic M&A?

Great, thank you, Ashwin. I think the main initial purposes, priorities, keep the growing. We are acquiring high growth companies and the first indicator as this company onboard CIG platform, they continue to grow in the way they were doing before. And then over time, We have two priorities. One is cross-sales opportunities that in both way, adding CI&T global capabilities, near-shore capabilities to their operations that also drives margin improvements and also leverage their global clients in different geographies or business units. So I would say that DEXA was an amazing As Bruno mentioned, amazing storyline. As Bruno mentioned, from August last year to November, it was fully integrated. And the four new growth units continue to grow at the same pace as CI&T. I think some follow the same pattern. Box is a different animal, is a strategy. boutique that we are now integrating with the whole cint end-to-end portfolio initial good signs but too early to to have a a concrete learning from this. And transpire will be our next move. By the way, transpire is not included in our guidance. We will do that as soon as we close the operation. We have the closing date of the operation.

Just to clarify, when is the closing date?

We expect it in this third quarter.

uh that's our expectation right now okay all right thank you ashrin that we have also a follow-up from tyler dupont from bank of america tyler great thank you i promise i'll be quick uh just to follow on that m a front uh and particularly the growth rate in europe it looks like this significant portion of that comes from the somo acquisition if i'm not mistaken can you just clarify how much of the european growth is attributable to recent acquisitions versus just traditional organic?

Well, if I got it right, the question is how much of the growth is attributed to the acquisition itself. Is that correct, Taylor? Correct, yeah.

The growth in Europe. Yeah, specifically in Europe.

Bruno, I know that, but really our operation in NIRVA was very small. And now the platform is basically SOMO clients expanding and new clients we acquired. And we combined with CIT in a new growth unit.

I would say 80% would come from the acquisition part.

Another way to look at that, Tyler, our revenue in Europe pre-acquisition was about 3% of total sales. So now this 9% is mainly due to the acquisition.

Okay, perfect. Well, thank you again.

Thanks, Tyler. So that concludes our Q&A session. Thank you all for attending our event today. I'll now invite Cesar Ghosn to proceed with his final remarks. Cesar.

Thank you, Eduardo, Stanley and Bruno for joining me today. Thank you all for participating in our call. Again, I want to thank you all CI Interiors for the amazing impact We are delivering as a team and client investors and partners for the continuous support. Stay well. I'm looking forward to see you in a couple of months.